Government policy response to war-expenditure shocks

A theory of government policy determination, based on intertemporal distortion-smoothing and limited commitment, matches the set of stylized facts of U.S. wartime policy.Government spending policy ; War - Economic aspects ; War finance

Government policy in monetary economies

I study how the general and specific details of a micro founded monetary framework affect the determination of policy when the government has limited commitment. The conduct of policy depends on the interaction between the incentive to smooth distortions intertemporally and a time-consistency problem. In equilibrium, fiscal and monetary policies are distortionary, but long-run policy is not afflicted by time-consistency problems. Policy variables in specific applications of the general framework react similarly to variations in fundamentals. Nevertheless, resolving certain environment frictions affect long-run policy significantly. The response of government policy to aggregate shocks is qualitatively similar across the studied model variants. However, there are significant quantitative differences in the response of government policy to productivity shocks, mainly due to the idiosyncratic behavior of the money demand. Environments with no trading frictions display the best fit to post-war U.S. data.Economic policy

Fiscal policy in the Great Recession and lessons from the past

The recent behavior of key fiscal policy variables draws some parallels with the U.S. experience in the Civil War and the two world wars. A specific concern is the possibility of high inflation to finance the accumulated debt.Fiscal policy ; Recessions

Government Policy in Monetary Economies

I study how the specific details of a micro founded monetary economy affect the determination of government policy. I consider three variants of the Lagos-Wright monetary framework: a benchmark were all markets are competitive; a case which allows for financial intermediaries; and a case with trading frictions. Although intitutions/frictions are shown to have a significant structural impact in the determination of policy, the calibrated artificial economies are observationally equivalent in steady state. The policy response to aggregate shocks is qualitatively similar in the variants considered. However, there are significant quantitative differences in the response of government policy to productivity shocks, mainly due to the idiosyncratic behavior of money demand. The variants with no trading frictions display the best fit to U.S. post-war data.government policy; lack of commitment; financial intermediation; trading frictions; micro founded models of money

Policy and welfare effects of within-period commitment

I study the implications of different institutional frameworks for the conduct of fiscal policy, under the assumption that the government cannot commit to future policy choices. The environments analyzed vary on whether the government is endowed with the ability to commit to beginning-of-period policy announcements or not. If it cannot, then there are two variants, depending on which actions private agents take before observing the government’s policy choice. How the three possible cases rank in terms of tax rates and welfare varies substantially with the economy’s fundamentals and whether depreciation is tax deductible or not. More generally, I find that regimes with higher tax rates do not necessarily imply lower welfare. I also find that making depreciation not tax-deductible typically involves a welfare loss. Within the context of the environments studied in this paper, I find that there are only small gains from modifying the way fiscal policy is conducted in modern developed economies. Furthermore, some reforms may lead to large welfare losses.Fiscal policy ; Welfare ; Equilibrium (Economics)

Money and capital as competing media of exchange in a news economy

Conventional theory suggests that fiat money will have value in capital-poor economies. We demonstrate that fiat money may also have value in capital-rich economies, if the price of capital is excessively volatile. Excess asset-price volatility is generated by news; information that has no social value, but is privately useful in forming forecasts over the short-run return to capital. One advantage of fiat money is that its expected return is not linked directly to news concerning the prospects of an underlying asset. When money and capital compete as media of exchange, excess volatility in the short-term returns of liquid asset portfolios is mitigated and welfare is improved. A legal restriction that prohibits the use of capital as a payment instrument renders the expected return to money perfectly stable and, as a consequence, may generate an additional welfare benefit.Money theory ; Capital

Moral hazard and lack of commitment in dynamic economies

We revisit the role of limited commitment in a dynamic risk-sharing setting with private information. We show that a Markov-perfect equilibrium, in which agent and insurer cannot commit beyond the current period, and an infinitely-long contract to which only the insurer can commit, implement identical consumption, effort and welfare outcomes. Unlike contracts with full commitment by the insurer, Markov-perfect contracts feature non-trivial and determinate asset dynamics. Numerically, we show that Markov-perfect contracts provide sizable insurance, especially at low asset levels, and are able to explain a significant part of wealth inequality beyond what can be explained by self-insurance. The welfare gains from resolving the commitment friction are larger than those from resolving the moral hazard problem at low asset levels, while the opposite holds for high asset levels.Moral hazard ; Risk

Towards DIB mapping in galaxies beyond 100 Mpc. A radial profile of the λ\lambda5780.5 diffuse interstellar band in AM 1353-272 B

Diffuse Interstellar Bands (DIBs) are non-stellar weak absorption features of unknown origin found in the spectra of stars viewed through one or several clouds of Interstellar Medium (ISM). Research of DIBs outside the Milky Way is currently very limited. Specifically spatially resolved investigations of DIBs outside of the Local Group is, to our knowledge, inexistent. Here, we explore the capability of the high sensitivity Integral Field Spectrograph, MUSE, as a tool to map diffuse interstellar bands at distances larger than 100 Mpc. We use MUSE commissioning data for AM 1353-272 B, the member with highest extinction of the "The Dentist's Chair", an interacting system of two spiral galaxies. High signal-to-noise spectra were created by co-adding the signal of many spatial elements distributed in a geometry of concentric elliptical half-rings. We derived decreasing radial profiles for the equivalent width of the $\lambda$5780.5 DIB both in the receding and approaching side of the companion galaxy up to distances of $\sim$4.6 kpc from the center of the galaxy. Likewise, interstellar extinction, as derived from the Halpha/Hbeta line ratio displays a similar trend, with decreasing values towards the external parts. This translates into an intrinsic correlation between the strength of the DIB and the extinction within AM 1353-272 B consistent with the current existing global trend between these quantities when using measurements for both Galactic and extragalactic sight lines. Mapping of DIB strength in the Local Universe as up to now only done for the Milky Way seems feasible. This offers a new approach to study the relationship between DIBs and other characteristics and species of the ISM in different conditions as those found in our Galaxy to the use of galaxies in the Local Group and/or single sightlines towards supernovae, quasars and galaxies outside the Local Group.Comment: 4 pages, 4 figures, accepted for publication as a Letter in Astronomy and Astrophysics; Received 10 February 2015 / Accepted 20 February 2015 ; English corrections include

Vegetation Changes Ten Years after Catclaw Mimosa ( \u3cem\u3e Mimosa laxiflora \u3c/em\u3e ) Control with Tebuthiuron in a Short Grass Prairie at Northern Sonora, Mexico

Catclaw mimosa (Mimosa laxiflora) is a native, perennial half-size brush, which invades short grass prairie and competes with desirable species for water, nutrients and light interferes with cattle grazing and reduces range productivity. Tebuthiuron [1-(5-tert-Butyl-1,3,4-thiadiazol-2-yl)-1,3-dimethylurea; chemical formula C9H16N4OS] is a granular herbicide used to control invasive shrubby species on rangelands with sustainable forage responses (McGinty et al., 2009). Research trials conducted in the Chihuahuan and Sonoran deserts show that tebuthiuron at rates of 0.5 to 1.5 kg a.i./ha effectively controlled most shrubby species and significant increase forage in the Matorral area in Mexico and USA. Local information regarding catclaw mimosa control and forage production increases sustain after bush control in the short grass prairies does not exist. This study was conducted to evaluate vegetation changes after the application of tebuthiuron at rates of 0 and 1.5 kg a.i./ha to control high infestations of catclaw mimosa in the short grass prairies

External Shocks versus Domestic Policies in Emerging Markets

Debt crises in emerging markets have been linked to large fiscal deficits, high inflation rates, and large devaluations. This article studies a sovereign default model with domestic fiscal and monetary policies to understand Argentina’s experience during the 2000s commodity boom (2005–2017), following the default of 2001. The model suggests that domestic policies played a critical role in Argentina’s poor economic performance. Despite exceptionally favorable terms of trade, a rise in government spending led to higher taxation, inflation and currency depreciation, and lower output. Economic performance would have been worse had Argentina followed a strict, rather than accommodative, monetary policy without curbing its expansionary fiscal policy. Finally, limited access to international credit markets during this episode did not appear to play a significant role.Este artículo se encuentra publicado en Federal Reserve Bank of St. Louis Review, Second Quarter 2023, 105(2), pp. 108-21