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Investment is often irreversible, in that installed capital has little or no value unless used in production. In the presence of ongoing uncertainty, an individual firm's irreversible investment policy optimally alternates short bursts of positive gross investment to periods of inaction, when...
Persistent link: https://www.econbiz.de/10014074102
The dynamic response of aggregate variables to shocks is one of the central concerns of applied macroeconomics. The main measurement procedure for these dynamics consists of estimating an ARMA or VAR (VARs, for short). In non- or semi-structural approaches, the characterization of dynamics stops...
Persistent link: https://www.econbiz.de/10014076029
We propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar-denominated external debt present in these markets. We show that when financial constraints affect borrowing and lending between domestic agents, agents undervalue...
Persistent link: https://www.econbiz.de/10014080321
The last few years have seen a significant re-evaluation of the models used to analyze crises in emerging markets. Recent models typically stress financial constraints or distorted financial incentives. While this certainly represents progress, these models share a weakness with the earlier...
Persistent link: https://www.econbiz.de/10014110704
During emerging market crises, domestic agents might have sufficient collateral to borrow from the other domestic agents, but they are unable to borrow from foreigners because the country, as a whole, lacks international collateral. In this setting, we show that an (ex-post) optimizing central...
Persistent link: https://www.econbiz.de/10014118568
We propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar-denominated external debt present in these markets. We show that when financial constraints affect borrowing and lending between domestic agents, agents undervalue...
Persistent link: https://www.econbiz.de/10014118569
The 1990s have witnessed a revival in economists' interest and hope of explaining aggregate and microeconomic investment behavior. New theories, better econometric procedures, and more detailed panel data sets are behind this movement. Much of the progress has occurred at the level of...
Persistent link: https://www.econbiz.de/10014024233
Even well managed emerging market economies are exposed to significant external risk, the bulk of which is financial. At a moment's notice, these economies may be required to reverse the capital inflows that have supported the preceding boom. While capital flows crises are sudden nonlinear...
Persistent link: https://www.econbiz.de/10014081702
We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their...
Persistent link: https://www.econbiz.de/10013296267
Central banks (the Fed) and markets (the market) often disagree about the path of interest rates. We develop a model where these different views stem from disagreements between the Fed and the market about future aggregate demand. We then study the implications of these disagreements for...
Persistent link: https://www.econbiz.de/10013300933