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This paper argues that both horizontal and intertemporal competition among recipient governments are needed in order to ensure incentives for effective utilization of targeted transfers. This has implications for budgeting frameworks and the types of information needed that might be amenable to formal contracting between the levels of government.
Finance, Public. --- Intergovernmental fiscal relations. --- Cameralistics --- Public finance --- Public finances --- Currency question --- Federal-state fiscal relations --- Fiscal relations, Intergovernmental --- State-local fiscal relations --- Federal government --- Finance, Public --- Local finance --- Law and legislation --- Budgeting --- Finance: General --- Public Finance --- Taxation --- State and Local Government --- Intergovernmental Relations: General --- State and Local Taxation, Subsidies, and Revenue --- General Financial Markets: General (includes Measurement and Data) --- Taxation, Subsidies, and Revenue: General --- National Budget --- Budget Systems --- National Government Expenditures and Related Policies: General --- Finance --- Public finance & taxation --- Budgeting & financial management --- Competition --- Tax incentives --- Budget planning and preparation --- Expenditure --- Budget --- Expenditures, Public
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We study the sovereign debt duration chosen by the government in the context of a standard model of sovereign default. The government balances off increasing the duration of its debt to mitigate rollover risk and lowering duration to mitigate the debt dilution problem. We present two main results. First, when the government decides the debt duration on a sequential basis, sudden stop risk increases the average duration by 1 year. Second, we illustrate the time inconsistency problem in the choice of sovereign debt duration: governments would like to commit to a duration that is 1.7 years shorter than the one they choose when decisions are made sequentially.
Debts, Public. --- Default (Finance) --- Finance --- Finance, Public --- Repudiation --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Exports and Imports --- Financial Risk Management --- Investments: Bonds --- Macroeconomics --- International Lending and Debt Problems --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Personal Income, Wealth, and Their Distributions --- Price Level --- Inflation --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Debt Management --- Sovereign Debt --- International economics --- Investment & securities --- Sudden stops --- Personal income --- Asset prices --- Debt dilution --- Balance of payments --- National accounts --- Prices --- Financial institutions --- Asset and liability management --- Capital movements --- Income --- Mexico
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This guide presents the analytical underpinnings and a user manual for the Excel-based Public Debt Dynamics Tool (DDT).
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This guide presents the analytical underpinnings and a user manual for the Excel-based Public Debt Dynamics Tool (DDT).
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We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.
Macroeconomics --- Economics: General --- Financial Risk Management --- International Lending and Debt Problems --- Open Economy Macroeconomics --- Fiscal Policy --- Debt --- Debt Management --- Sovereign Debt --- Price Level --- Inflation --- Deflation --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- Fiscal rules --- Fiscal policy --- Debt limits --- Asset and liability management --- Asset prices --- Prices --- Currency crises --- Informal sector --- Economics
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We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.
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This paper finds optimal fiscal rule parameter values and measures the effects of imposing fiscal rules using a default model calibrated to an economy that in the absence of a fiscal rule pays a significant sovereign default premium. The paper also studies the case in which the government conducts a voluntary debt restructuring to capture the capital gains from the increase in its debt market value implied by a rule announcement. In addition, the paper shows how debt ceilings may reduce the procyclicality of fiscal policy and thus consumption volatility.
Fiscal policy --- Country risk --- Default (Finance) --- Debt relief --- Finance --- Finance, Public --- Repudiation --- Country risk, Political --- Political risk (Foreign investments) --- Risk --- Tax policy --- Taxation --- Economic policy --- Debt renegotiation --- Debt rescheduling --- Debt restructuring --- Relief, Debt --- Renegotiation, Debt --- Rescheduling, Debt --- Restructuring, Debt --- Debtor and creditor --- Econometric models. --- Government policy --- Law and legislation --- Financial Risk Management --- Macroeconomics --- Public Finance --- International Lending and Debt Problems --- Open Economy Macroeconomics --- Fiscal Policy --- Personal Income, Wealth, and Their Distributions --- Debt --- Debt Management --- Sovereign Debt --- Public finance & taxation --- Fiscal rules --- Personal income --- Debt limits --- Public debt --- National accounts --- Asset and liability management --- Income --- Debts, Public --- Argentina
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This paper incorporates house price risk and mortgages into a standard incomplete market (SIM) model. The model is calibrated to match U.S. data and accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. The average coefficients that measure the agents' ability to self-insure against income shocks are similar to those of a SIM model without housing but housing increases the values of these coefficients for younger agents. The response of consumption to house price shocks is minimal. The introduction of minimum down payments or income garnishment benefits a majority of the population.
Mortgages --- Default (Finance) --- Housing --- Affordable housing --- Homes --- Houses --- Housing needs --- Residences --- Slum clearance --- Urban housing --- City planning --- Dwellings --- Human settlements --- Finance --- Finance, Public --- Repudiation --- Hypothecation --- Real obligations --- Securities --- Security (Law) --- Conveyancing --- Liens --- Priorities of claims and liens --- Econometric models. --- Prices --- Social aspects --- Law and legislation --- Infrastructure --- Macroeconomics --- Real Estate --- Industries: Financial Services --- Welfare Economics: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Financial Markets and the Macroeconomy --- Housing Supply and Markets --- Economic Development: Urban, Rural, Regional, and Transportation Analysis --- Banks --- Depository Institutions --- Micro Finance Institutions --- Aggregate Factor Income Distribution --- Property & real estate --- Housing prices --- Consumption --- Income --- National accounts --- Financial institutions --- Saving and investment --- Economics --- United States
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We study the sovereign default model that has been used to account for the cyclical behavior of interest rates in emerging market economies. This model is often solved using the discrete state space technique with evenly spaced grid points. We show that this method necessitates a large number of grid points to avoid generating spurious interest rate movements. This makes the discrete state technique significantly more inefficient than using Chebyshev polynomials or cubic spline interpolation to approximate the value functions. We show that the inefficiency of the discrete state space technique is more severe for parameterizations that feature a high sensitivity of the bond price to the borrowing level for the borrowing levels that are observed more frequently in the simulations. In addition, we find that the efficiency of the discrete state space technique can be greatly improved by (i) finding the equilibrium as the limit of the equilibrium of the finite-horizon version of the model, instead of iterating separately on the value and bond price functions and (ii) concentrating grid points in asset levels at which the bond price is more sensitive to the borrowing level and in levels that are observed more often in the model simulations. Our analysis questions the robustness of results in the sovereign default literature and is also relevant for the study of other credit markets.
Capital market --- Default (Finance) --- Debts, Public --- Econometric models. --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Finance --- Finance, Public --- Repudiation --- Capital markets --- Market, Capital --- Financial institutions --- Loans --- Money market --- Securities --- Crowding out (Economics) --- Efficient market theory --- Macroeconomics --- Public Finance --- Price Level --- Inflation --- Deflation --- Personal Income, Wealth, and Their Distributions --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- National Government Expenditures and Related Policies: General --- Public finance & taxation --- Asset prices --- Personal income --- Income shocks --- Consumption --- Public expenditure review --- Prices --- Income --- Economics --- Expenditures, Public --- United States
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Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.
Capital movements --- Default (Finance) --- Risk --- Economics --- Uncertainty --- Probabilities --- Profit --- Risk-return relationships --- Finance --- Finance, Public --- Repudiation --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Econometric models. --- Foreign exchange reserves --- Currency reserves, Foreign --- Foreign currency reserves --- Foreign reserves (Foreign exchange reserves) --- International reserves (Foreign exchange reserves) --- Reserves, Foreign exchange --- Reserves (Accounting) --- E-books --- Banks and Banking --- Exports and Imports --- Financial Risk Management --- Investments: Bonds --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- International Lending and Debt Problems --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Personal Income, Wealth, and Their Distributions --- Monetary Policy --- Debt --- Debt Management --- Sovereign Debt --- General Financial Markets: General (includes Measurement and Data) --- International economics --- Banking --- Investment & securities --- Sudden stops --- Personal income --- Reserves accumulation --- Debt refinancing --- Bonds --- Central banks --- National accounts --- Asset and liability management --- Financial institutions --- Income --- Mexico
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