May 5, 2022 | 3:30 pm | Monroe 235
Nicole Fleskes, “Aggregate liquidity shocks and endogenous contact rates in OTC markets”
Abstract: "How well do dealers in over-the-counter (OTC) markets provide liquidity in times of distress? To try to answer this question, for the summer paper I will use a search model of OTC markets that features dealers who can choose their contact rate, an aggregate liquidity shock in the style of Weill (2007), and a suite of policy tools available to the government to try to improve outcomes: the provision of cheap capital to dealers, the direct purchase of assets, and the relaxation of balance sheet constraints."
John Wilhoite, “Financing of Idea Production”
Abstract: "The key question I am exploring is whether spillovers generated from basic research dissuade investors with concentrated holdings from investing in firms that produce basic research. I am interested in measuring the under provision of basic research when comparing my model populated with concentrated investors to a model with a planner indifferent to spillovers that may benefit rival firms."
April 28, 2022 | 3:30 pm | Monroe 130
Yong Cho, “Macroprudential Fiscal Policy”
Abstract: "In a model where government debt and private assets serve as collateral, the private assets substitute the role of safe assets as collateral when there is an insufficient supply of government bonds. This can result in a decrease in safe investment and an increase in risky investment, resulting in high output volatility. By increasing the government bond supply, the government can increase the safe investment and decrease risky investment to their efficient levels. The optimal supply of government bonds eliminates the collateral premium on financial assets and reduces output volatility."
Yi Ping, "Household Leverage over the Lifecycle"
Abstract: "I develop a lifecycle model of consumption and housing choice, in which households optimally choose the mortgage contract from a credit surface which specifies the loan-to-value ratio and the corresponding interest rate. In this talk, I will present a stylized model with three-period lived households and binomial income process, and show that leverage and housing price both decline when the middle-aged experience a bad income shock. Then, I will compare the equilibrium outcomes with two economies in which the financial market is different: i) a financial autarky economy, ii) a bond economy with a natural borrowing limit. Moving forward, I want to estimate moments in the housing market, and develop a quantitative model that can be taken to the data."
Yan Chen, "Amplification with Income-Based Versus Asset-Based Borrowing Constraints"
Abstract: "Borrowing constraints are widely incorporated in macroeconomic models with financial frictions. This paper demonstrates amplification of shocks through aggregate demand in a theoretical model that incorporates an income-based borrowing constraint on households. The paper analyzes the effects of ex-post policy measures to address the aggregate demand externalities and compare the results to a model with an asset-based borrowing constraint. Asset purchases boosting asset prices directly, such as open market purchases, are most effective with asset-based borrowing constraint. However, a fiscal stimulus through taxing lenders can mitigate the adverse feedback if borrowers are constrained by income, while the same expansion is not adequate to address that if borrowers are constrained by asset value."
April 21, 2022 | 3:30 pm | Monroe 130
Tyler Wake, “Business Relationships, Trade Credit, and Idiosyncratic Shocks”
Abstract: "I propose a mechanism where trade credit is supported in decentralized markets where input providers ("suppliers") and output producers ("retailers") search for business partners and anticipate repeated interactions. My mechanism is connected to macroeconomic trends in business dynamism, increased dispersion in productivity shocks yet lower responsiveness to those shocks, and an increase in trade credit. In this talk, I will first review the simple model of trade without productivity shocks, explaining the equilibrium equations and a comparative static results and providing intuition of how search works in the model. Then, I will discuss how introducing idiosyncratic productivity shocks has changed equilibrium outcomes, highlighting how output responds to the shocks. This summer I will take the solved model to the data".
Mrithyunjayan Nilayamgode, "Collateral, Default, and Punishment in General Equilibrium"
Abstract: "This paper builds a binomial general equilibrium model where both secured and unsecured debt contracts are available for trade and analyzes this model to prove the existence of equilibria. In particular, I define a coexistence equilibrium in this economy as an equilibrium that involves trade in at least one asset of each type and study the sufficient conditions to guarantee a coexistence equilibrium. This paper combines the concept of endogenous leverage with the anonymity of perfectly competitive markets to present a scenario where agents choose to hold both kinds of debt. There is some evidence, based on numerical examples, to suggest that this is related to endowment inequalities that prevent a non-zero measure of agents from being able to afford the down payment necessary to access secured credit. Finally, I also plan to try and understand the consequences of these results, especially in relation to asset pricing".
April 7, 2022 | 3:30 pm | Monroe 130
Daniel Harper, “Financial Amplification: An Experiment”
Abstract: "I develop an experimental methodology to test the theory of financial amplification in the lab. I develop a theoretical model designed for implementation in a laboratory environment. When borrowing constraints depend on asset prices financial amplification occurs. The model also allows for borrowing constraints that allow an exogenous amount of borrowing per asset held. When these borrowing constraints are used financial amplification does not occur in the model. I show that exogenous constraints can be calibrated to result in an equilibrium equivalent to the price-linked constraint equilibrium. When liquidity shocks increase debt levels from this equilibrium, prices decrease more under price-linked constraints than exogenous constraints. This model is implemented in an experimental design with two treatments, one for each borrowing constraint. In each session subjects participate in the model multiple times. In some rounds participants experience liquidity shocks. Financial amplification is identified in the lab by comparing asset prices and allocations across the borrowing treatments for high and low liquidity shock rounds".
March 24, 2022 | 3:30 pm | Monroe 130
Soo Kang, “How demographics shape the composition of government outlays under majority voting”
Abstract: "I study how the allocation of government outlays change, when aging population distribution alters majority voting outcome as agents are heterogeneous in terms of where they are in a three-staged life cycle: students, workers, and retirees. Taking evolving age structure and its projections as given, I build a three period overlapping generations model with both public capital and human capital, and calibrate it to the US national level data".
Alex Sheng, “Infrequent Portfolio Adjustment and the Excess Volatility Puzzle”
Abstract: "I study the effect of infrequent portfolio adjustment and limited information on optimal portfolio and equilibrium asset prices and volatility. Using a continuous time general equilibrium asset pricing model, I study how heterogeneous beliefs can arise in an economy where agents can only adjust their portfolios infrequently. I explore how adjustment frequencies affect the portfolio choices and the asset volatility. The intuition is that infrequent portfolio adjustment amplifies forecasting errors when agents have limited information and therefore leads to excess volatility".
March 17, 2022 | 3:30 pm | Monroe 130
Joe Anderson, “Non-Cooperation in Debt Maturity”
Abstract: "Motivated by evidence of a non-cooperative approach to the outstanding maturity structure of U.S. debt between the Federal Reserve and Treasury over the past 20 years, I construct a model in which an economy's debt-manager and central bank operate as separate institutions in the market for government debt. Model households use the maturity structure of federal debt as a hedge against uncertain future government spending. I explore how different institutional objective specifications impacts household welfare and characterize policy improvements under these objectives".
Donghyun Suh, “The Low Interest Rate-Inequality Multiplier”
Abstract: "In this paper, I examine whether a decline in the interest rate can lead to higher income inequality. I study the link between interest rates and income inequality in a Bewley-Huggett-Aiyagari model with two skill types and capital-skill complementarity. I analytically show that an exogenous increase in income inequality is amplified through an equilibrium feedback effect from a decline in the interest rate. The intuition is that high-skilled agents save more in the higher-inequality economy due to the precautionary savings motive. The aggregate capital stock rises as a result. Capital-skill complementarity implies a further increase in income inequality as capital complements high-skilled labor and substitutes low-skilled labor. Then I demonstrate the analytical results in a quantitative exercise".
March 4, 2022 | 11 am | Monroe 120
Hasan Toprak, “Optimal Policy Mix Under Currency Misalignment between External Debt and Trade”
Abstract: "In this project, I show that misalignment between currency composition of external debt and trade is an important source of fragility for an economy. First, I develop an open economy New Keynesian model with a collateral constraint to rationalize the existence of misalignment together with overborrowing and study its implications. Misalignment leads to differential exchange rate pass through to asset and goods prices that generates fluctuations in real value of assets, thus, amplifies foreign exchange rate shocks. Policymaker addresses overborrowing and misalignment in private agents’ portfolios by imposing differential capital controls or accumulating differential international reserves based on currency. Absent from these full set of instruments, optimal monetary policy deviates from macro stabilization to address inefficient portfolio choice. Second, I study the international monetary policy transmission in this setup. When there is a contractionary US monetary policy, countries with a higher misalignment face a higher real debt revaluation, hence, they experience a higher (1) domestic monetary policy rate, (2) depreciation in their currencies, and (3) currency premium. My empirical findings from an event study type of analysis with high frequency data support these predictions".