This paper analyzes how government intervention in the market for banks' troubled assets is best designed, and also uses this analysis to evaluate the public-private investment program announced by the U.S. government in March 2009. I begin by presenting the case for using government funds to...

When the government commits to a debt policy, the future value of government primary surpluses at all horizons is dictated by the debt dynamics under the risk-neutral measure. We compare the present discounted value of future surpluses implied by the U.S. federal government debt dynamics in a...

We study whether a pre-existing link between bank and sovereign credit risk biased euro area banks' sovereign debt portfolio choices during 2011Q4 and 2012Q1 - a period of exceptional increases in their domestic sovereign bond holdings. We find that banks whose creditworthiness is linked to that...

The Portfolio Theory of Inflation (PIT) proposed in this study investigates the role of global financial markets in determining the effectiveness of macroeconomic policy in open and fully financial integrated economies. The PIT adopts a modified version of the portfolio balance approach to...

The analysis of open macroeconomies typically assumes (implicitly or explicitly) that resource allocation decisions are taken by domestic agents. The Portfolio Theory of Inflation (PTI) developed in this study assumes that some critical allocation decisions are taken by global investors and...

This study revisits and tests empirically the Portfolio Theory of Inflation (PTI), which analyzes how the effectiveness of macroeconomic policy in open and globally financially integrated economies is influenced by global investor decisions (Bossone, The portfolio theory of inflation and policy...

Several targeted welfare programs across the world have made owner-occupied housing exempt from the means test, such as the Supplementary Social Income (SSI) in the US and the age pension scheme in Australia. Relatively little is known about the impact of such exemption on household portfolio...

As their populations grow older, the industrial countries face steep increases in public pension costs. If countries change their pension systems in advance of sharply higher pension costs, it is possible to prepare for the added retirement costs by funding a portion of the future liabilities...

This paper studies a novel approach for managing macroeconomic volatility in developing countries based upon dynamic portfolio optimisation. As part of this study, we develop a sovereign risk management model in the context of an Asset-Liability Management (ALM) framework. First, we solve the...

This paper studies a novel approach for managing macroeconomic volatility in commodity exporting countries. As part of this study, we develop a sovereign risk management model in the context of an Asset-Liability Management (ALM) framework. Our first contribution is an extension of the...