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Fiscal multipliers in an incomplete markets economy

Abreu, Rodrigo Soares de
Fonte: Fundação Getúlio Vargas Publicador: Fundação Getúlio Vargas
Tipo: Dissertação
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This paper studies the behavior of fiscal multipliers in two different economic environments: complete markets and incomplete markets. Based on steady state analysis, output multipliers are found within a range between 0.49 and 0.66, when the markets are complete. Under incomplete markets, output multiplier was found in an interval between 0.75 and 0.94. These results indicates that the market structure, which reflects the degree of risk sharing and the intensity of the precautionary motive faced by individuals, plays a key role in determining the fiscal multipliers. In the second part of the paper, was performed an exercise to analyze the dynamic response of macroeconomic aggregates to an exogenous and unexpected rise in government spending financed by lump-sum taxes. In this case, impact output multipliers varies in a range between 0.64 and 0.68, under complete markets, and within 1.05 and 1.20 when markets are incomplete. The results found under incomplete markets are very close to that found on related literature which usually uses an econometric approach or calibrated/estimated New Keynesian models. These results shows that taking into account the deficiencies in the insurance mechanisms can be an interesting way to reconcile theoretical models with the results found on related current literature...

Essays in incomplete markets; Essays on incomplete markets

Panousi, Vasia
Fonte: Massachusetts Institute of Technology Publicador: Massachusetts Institute of Technology
Tipo: Tese de Doutorado Formato: 104 p.
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This thesis studies the macroeconomics of incomplete markets. Chapter 1 studies the effects of capital taxation in a dynamic heterogeneous-agent economy with uninsurable entrepreneurial risk. Unlike either the complete-markets paradigm or Bewley-type models where idiosyncratic risk impacts only labor income, here it is shown that capital taxation may actually stimulate capital accumulation. This possibility emerges because of the general-equilibrium effects of the insurance aspect of capital taxation. Chapter 2, which is joint work with George-Marios Angeletos, revisits the macroeconomic effects of government consumption in the neoclassical growth model augmented with idiosyncratic investment (or entrepreneurial) risk. Under complete markets, a permanent increase in government consumption has no long-run effect on the interest rate, the capital-labor ratio, and labor productivity, while it increases work hours due to the familiar negative wealth effect. Under incomplete markets, the very same negative wealth effect now causes a reduction in risk taking and investment. This in turn leads to a lower risk-free rate and, under certain conditions, also to a lower capital-labor ratio, lower productivity and lower wages. Chapter 3 uses annual Greek data to test the validity of the Permanent Income Hypothesis (PIH) versus the "Keynesian" view that consumption responds to current income. The PIH is rejected by all tests...

Market integration in wholesale rice markets in India

Jha, Raghbendra; Murthy, KV Bhanu; Sharma, Anurag
Fonte: Universidade Nacional da Austrália Publicador: Universidade Nacional da Austrália
Tipo: Working/Technical Paper Formato: 1168696 bytes; 354 bytes; application/pdf; application/octet-stream
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This paper tests for market integration in 55 wholesale rice markets in India using monthly data over the period January 1970 – December 1999. The technique of Gonzalez-Rivera and Helfand (2001) is used to identify common factors across various markets. It is discovered that market integration is far from complete in India and a major reason for this is the excessive interference in rice markets by government agencies. As a result it is hard for scarcity conditions in isolated markets to be picked up by markets with abundance in supply. A number of policy implications are also considered.; no

Dynamic Competitive Economies with Complete Markets and Collateral Constraints

GOTTARDI, Piero; KUBLER, Felix
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: application/pdf; digital
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In this paper we examine the competitive equilibria of a dynamic stochastic economy with complete markets and collateral constraints. We show that, provided both the set of asset payoffs and collateral levels are sufficiently rich, the equilibrium allocations with sequential trades and collateral constraints are equivalent to those obtained in Arrow- Debreu markets subject to a series of appropriate limited pledgeability constraints. We provide sufficient conditions for equilibria to be Pareto efficient and show that when collateral is scarce equilibria are also often constrained inefficient, in the sense that imposing tighter borrowing restrictions can make everybody in the economy better off. We derive sufficient conditions for the existence of Markov equilibria and show that they typically have finite support when there are two agents’ types. The model is then tractable and its equilibria can be computed with arbitrary accuracy. We carry out on this basis a quantitative assessment of the risk sharing and efficiency properties of equilibria.

Endogenous policy leads to incomplete risk sharing

Celentani, Marco; Conde-Ruiz, J. Ignacio; Desmet, Klaus
Fonte: Elsevier Publicador: Elsevier
Tipo: info:eu-repo/semantics/acceptedVersion; info:eu-repo/semantics/article Formato: application/pdf; text/plain
Publicado em /07/2004 Português
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We analyze risk sharing and endogenous fiscal spending in a two-region model with sequentially complete markets. Fiscal policy is determined by majority voting. When policy setting is decentralized, regions choose fiscal spending in an attempt to manipulate security prices. This leads to incomplete risk sharing, despite the existence of complete markets and the absence of aggregate risk. When a fiscal union centralizes fiscal policy, complete risk sharing ensues. If regions are relatively homogeneous, median income residents of both regions prefer the fiscal union. If they are relatively heterogeneous, the median resident of the rich region prefers the decentralized setting.

Inflation in open economies with complete markets

Celentani, Marco; Conde-Ruiz, J. Ignacio; Desmet, Klaus
Fonte: Springer Publicador: Springer
Tipo: info:eu-repo/semantics/acceptedVersion; info:eu-repo/semantics/article Formato: text/plain; application/pdf
Publicado em /05/2007 Português
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This paper uses an overlapping generations model to analyze monetary policy in a two-country model with asymmetric shocks. Agents insure against risk through the exchange of a complete set of real securities. Each central bank is able to commit to the contingent monetary policy rule that maximizes domestic welfare. In an attempt to improve their country’s terms of trade of securities, central banks choose to commit to costly inflation in favorable states of nature. In equilibrium the effects on the terms of trade wash out, leaving both countries worse off. Countries facing asymmetric shocks may therefore gain from monetary cooperation.; We acknowledge the financial support of Fundación BBVA, the Ministry of Science and Technology (BEC 2002-03715), the Comunidad de Madrid (06/0096/03), and the Commission for Cultural, Educational and Scientific Exchange between theUnited States ofAmerica and Spain (Project 7–42)

Incomplete interregional risk sharing with complete markets

Celentani, Marco; Conde-Ruiz, J. Ignacio; Desmet, Klaus
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /02/2002 Português
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We analyze risk sharing and fiscal spending in a two-region model with complete markets. Fiscal policy is determined by majority voting. When policy setting is decentralized, regions choose pro-cyclical fiscal spending in an attempt to manipulate securities prices to their benefit. This leads to incomplete risk sharing, despite the existence of complete markets and the absence of aggregate risk. When a fiscal union centralizes fiscal policy, securities prices can no longer be manipulated and complete risk sharing ensues. If regions are homogeneous, median income residents of both regions prefer the fiscal union. If they are heterogeneous, the median resident of the rich region prefers the decentralized setting; Marco Celentani acknowledges the financial support of MCYT (Spain) under project PB98-00024. José-Ignacio Conde-Ruiz acknowledges the financial support of MECD (Spain) under project EX200l-02885993E. Klaus Desmet acknowledges the financial support of the Commission for Cultural Educational and Scienlific Exchange between the United States of America and Spain (Project 7-42) and the Comunidad de Madrid (Project 06/O064/2000).

Inflation in open economies with complete markets

Celentani, Marco; Conde-Ruiz, J. Ignacio; Desmet, Klaus
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /06/2004 Português
Relevância na Pesquisa
46.943115%
This paper uses an overlapping generations model to analyze monetary policy in a two-country model with asymetric shocks. Agents insure against risk through the exchange of a complete set of real securities. Each central bank is able to commit to the contingent monetary policy rule that maximizes domestic welfare. In an attempt to improve their country's terms of trade of securities, central banks may choose to commit to costly inflation in favorable states of nature. In equilibrium the effects on the terms of trade wash out, leaving both countries worse off. Countries facing asymmetric shocks may therefore gain from monetary cooperation.

Anatomizing incomplete-markets small open economies: policy trade-offs and equilibrium determinacy

Alonso-Carrera, Jaime; Kam, Timothy
Fonte: Cambridge University Press Publicador: Cambridge University Press
Tipo: Artigo de Revista Científica
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We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-markets equilibrium. Market incompleteness exacerbates the domestic-inflation and output-gap monetary-policy trade-off in two ways: its steepness and its resulting endogenous cost-push to the trade-off. The latter depends on an equilibrium combination of structural shocks and on agents' beliefs of future events. Thus, in comparison to its complete-markets and closed-economy limits, standard Taylor-type rules are less capable of inducing determinate rational expectations equilibrium in our environment. Despite the larger policy trade-off under incomplete markets, simple policies that also respond to exchange-rate growth are able to manage expectations that drive the endogenous cost-push term. However, policies that respond directly to expectations may turn out to exacerbate the cost-push trade-off further, and thus, to be more likely to fuel self-fulfilling multiple or unstable equilibria.

Development of Competitive Natural Gas Markets in the United States

Juris, Andrej
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
Tipo: Publications & Research :: Viewpoint; Publications & Research
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The United States has the world's largest natural gas market. Fifteen years of deregulation have delivered significant gains to consumers in the form of lower prices and more services. The experience shows that liberalizing wholesale gas prices and the bulk supply of natural gas frees market forces in segments where competition is feasible. But regulators must focus on improving the regulation of pipeline transportation and minimizing its distortive effect on competitive gas markets. Introducing flexibility into pricing and other conditions of transportaion contracts such as delivery locations or the balancing of gas shipments and standardizing pipeline operations promote more efficient use of pipelines and benefit all industry participants. The U.S. experience also shows the important role of gas marketers and spot markets in increasing the efficiency of gas transactions and prices. Deregulation of the U.S. gas industry is far from complete, however. The most important task, and the biggest challenge for regulators...

On uniqueness of equilibrium for complete markets with infinitely many goods and in finance models

Accinelli, Elvio
Fonte: Universidad de Chile. Facultad de Economía y Negocios Publicador: Universidad de Chile. Facultad de Economía y Negocios
Tipo: Artículo de revista
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Our concern in this paper is to obtain conditions for the uniqueness of equilibria, with, commodity bundles as consumption patterns which depend on the state of the world. In the first section we consider an economy with complete markets, where consumption spaces are a finite product of measurable function spaces, with separable and proper utility functions and with strictly positive endowments. Using the excess utility function the infinite dimensional problem stated above is reduced to a finite dimensional one. We obtain local uniqueness. The degree theory, and specially the Poincare-Hopf theorem applied to this excess utility function, allows us to characterize the cardinality of the equilibrium set, and we find conditions for the global uniqueness of this set. On the other hand, we obtain conditions for the uniqueness in economies with incomplete markets and only one good available in each state of the world. When markets are incomplete, equilibrium allocations are typically not Pareto efficient;

Financial equilibria in the semimartingale setting: complete markets and markets with withdrawal constraints

Zitkovic, Gordan
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 04/06/2007 Português
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Existence of stochastic financial equilibria giving rise to semimartingale asset prices is established under a general class of assumptions. These equilibria are expressed in real terms and span complete markets or markets with withdrawal constraints.We deal with random endowment density streams which admit jumps and general time-dependent utility functions on which only regularity conditions are imposed. As an integral part of the proof of the main result, we establish a novel characterization of semimartingale functions.

Compact Securities Markets for Pareto Optimal Reallocation of Risk

Pennock, David M.; Wellman, Michael P.
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 16/01/2013 Português
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The emph{securities market} is the fundamental theoretical framework in economics and finance for resource allocation under uncertainty. Securities serve both to reallocate risk and to disseminate probabilistic information. emph{Complete} securities markets - which contain one security for every possible state of nature - support Pareto optimal allocations of risk. Complete markets suffer from the same exponential dependence on the number of underlying events as do joint probability distributions. We examine whether markets can be structured and "compacted" in the same manner as Bayesian network representations of joint distributions. We show that, if all agents' risk-neutral independencies agree with the independencies encoded in the market structure, then the market is emph{operationally complete}: risk is still Pareto optimally allocated, yet the number of securities can be exponentially smaller. For collections of agents of a certain type, agreement on Markov independencies is sufficient to admit compact and operationally complete markets.; Comment: Appears in Proceedings of the Sixteenth Conference on Uncertainty in Artificial Intelligence (UAI2000)

Risk Neutral Option Pricing With Neither Dynamic Hedging nor Complete Markets

Taleb, Nassim N.
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
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Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one, under any general probability distribution, bypassing the Black-Scholes-Merton dynamic hedging argument, and without the requirement of complete markets and other strong assumptions. We confirm that the heuristics used by traders for centuries are both more robust, more consistent, and more rigorous than held in the economics literature. We also show that options can be priced using infinite variance (finite mean) distributions.

On statistical indistinguishability of the complete and incomplete markets

Dokuchaev, Nikolai
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
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The possibility of statistical evaluation of the market completeness and incompleteness is investigated for continuous time diffusion stock market models. It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into a incomplete one. The paper shows that market incompleteness is also non-robust: small deviations can convert an incomplete model into a complete one. More precisely, it is shown that, for any incomplete market from a wide class of models, there exists a complete market model with arbitrarily close paths of the stock prices and the market parameters. This leads to a counterintuitive conclusion that the incomplete markets are indistinguishable from the complete markets in the terms of the market statistics.; Comment: 13 pages

Existence of Financial Equilibria in Continuous Time with Potentially Complete Markets

Herzberg, Frederik; Riedel, Frank
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Publicado em 09/07/2012 Português
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We prove that in smooth Markovian continuous-time economies with potentially complete asset markets, Radner equilibria with endogenously complete markets exist.

In Search of a Theory of Debt Management

Faraglia, Elisa; Marcet, Albert; Scott, Andrew
Fonte: Conselho Superior de Investigações Científicas Publicador: Conselho Superior de Investigações Científicas
Tipo: Documento de trabajo Formato: 387158 bytes; application/pdf
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Trabajo publicado como artículo en Journal of Monetary Economics 57(7): 821-836 (2010).-- http://dx.doi.org/10.1016/j.jmoneco.2010.08.005; A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market approach to debt management is valid even when the government only issues non-contingent bonds. A number of authors conclude from this approach that governments should issue long term debt and invest in short term assets.; We argue that the conclusions of this approach are too fragile to serve as a basis for policy recommendations. This is because bonds at different maturities have highly correlated returns, causing the determination of the optimal portfolio to be ill-conditioned. To make this point concrete we examine the implications of this approach to debt management in various models, both analytically and using numerical methods calibrated to the US economy. We find the complete market approach recommends asset positions which are huge multiples of GDP. Introducing persistent shocks or capital accumulation only worsens this problem. Increasing the volatility of interest rates through habits partly reduces the size of these simulations we find no presumption that governments should issue long term debt-policy recommendations can be easily reversed through small perturbations in the specification of shocks or small variations in the maturity of bonds issued.; We further extend the literature by removing the assumption that governments every period costlessly repurchase all outstanding debt. This exacerbates the size of the required positions...

Debt and deficit fluctuations and the structure of bond markets

Marcet, Albert; Scott, Andrew
Fonte: Universidade Autônoma de Barcelona Publicador: Universidade Autônoma de Barcelona
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em //2008 Português
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We analyse the implications of optimal taxation for the stochastic behaviour of debt. We show that when a government pursues an optimal fiscal policy under complete markets, the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase. By contrast, under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit. Data for US government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness.

Monte Carlo computation of optimal portfolios in complete markets

Cvitanić, Jakša; Goukasian, Levon; Zapatero, Fernando
Fonte: Elsevier Publicador: Elsevier
Tipo: Article; PeerReviewed Formato: application/pdf
Publicado em /04/2003 Português
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We introduce a method that relies exclusively on Monte Carlo simulation in order to compute numerically optimal portfolio values for utility maximization problems. Our method is quite general and only requires complete markets and knowledge of the dynamics of the security processes. It can be applied regardless of the number of factors and of whether the agent derives utility from intertemporal consumption, terminal wealth or both. We also perform some comparative statics analysis. Our comparative statics show that risk aversion has by far the greatest influence on the value of the optimal portfolio.

International business cycles with complete markets

Dmitriev, Alexandre; Roberts, Ivan
Fonte: Elsevier Publicador: Elsevier
Tipo: Artigo de Revista Científica
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Kehoe and Perri (2002) show that a two-country business cycle model with endogenously incomplete markets helps to resolve the "international comovement puzzle" (. Baxter, 1995) and the "quantity anomaly" (. Backus et al., 1992, 1995). We claim that a similar performance can be achieved without resorting to market incompleteness. We show that a model with complete markets driven by productivity shocks alone can account for the "international comovement puzzle". Our model features time nonseparable preferences that allow arbitrarily small wealth effects on labor supply. It matches the data by predicting (i) positive cross-country correlations of investment and hours worked; (ii) realistic cross-country correlations of consumption. It reduces the gap between international correlations of output and consumption, but fails to change their order. Unlike models with restricted international markets, ours show little sensitivity to the parameterization of the forcing process.