The problem of debt stabilization: An alternative approach

The paper deals with the problems of fiscal sustainability and the stabilization of the public debt. It criticizes the mainstream approach to these issues and argues that an approach inspired by Domar's contribution is preferable. While mainstream analyses of debt stabilization are based on the hypothesis that the economy's growth rate is independent of public spending and its composition, in the paper this hypothesis is removed. The growth rate is made dependent on the composition of public spending. In this analytical context, ensuring the stabilization of the ratio of the public debt to the GDP does not necessarily requires running a primary surplus, which instead is the fundamental mainstream conclusion when the interest rate on the debt is higher than the economy's growth rate. The debt ratio can be stabilized through increases in the economy's growth rate caused by adequate changes in the composition of public expenditure.

Policy Implications of Using Audits to Detect Bank Insolvencies

We present a model where a regulator has to decide how to tackle the potential insolvency of a bank in a context of asymmetric information. We show that, when it can audit the bank, the regulator is unlikely to choose a policy of bailout to induce the bank to reveal its insolvency. We show that, in some circumstances, the regulator can induce the bank to reveal its insolvency by threatening to randomize its decision to nationalize the bank.

Financial safety nets, bailouts and moral hazard

The paper argues that policymakers bail out banks with financial problems to avoid the costs of financial repression. After financial liberalization and when risk is verifiable, in some circumstances policymakers can commit to policies that discipline banks ex-ante and ex-post, by providing bailout to conservative banks and threatening the takeover of risky banks. When these policies are time consistent, regulatory policies to deal with moral hazard ex-ante, like for example prudential regulation, become redundant and policymakers refrain from implementing them.

ICT, financial innovation and monetary policy: Some critical considerations

[No abstract available