Financial Innovation in Multi-Period Economies

I present an attempt to construct multi-period, finite horizon extensions to the well -known two- period financial innovations literature. I first extend the definition of competitive equilibrium with innovations. It is shown that, with a dominating houseIncomplete markets, financial innovation, multiperiod economies

Transacciones basadas en información privilegiada y conducción empresarial en América Latina

(Disponible en idioma inglés únicamente) A diferencia de los inversionistas externos, los grupos de control tienen la opción de realizar transacciones basadas en información privilegiada y pueden ejercerla a costa de los inversionistas externos. En este trabajo se calculan las probabilidades de realización de transacciones informadas (ITP, por sus siglas en inglés) para el universo de acciones líquidas de siete países latinoamericanos que se negocian tanto en el país de origen como en ADR, y se aplica la ITP para dar respuesta a preguntas sobre la conducción empresarial. Se halló una heterogeneidad considerable de las ITP dentro de un entorno institucional. No obstante, se identificaron diferencias significativas de la ITP media entre gamas de volumen, países y tipos de título valor. La ITP guarda una correlación intuitivamente llamativa con algunas de las variables de protección de inversionistas en el ámbito nacional que se emplean en la obra publicada (no con todas). Se hallaron incrementos considerables de la ITP justo antes de efectuarse anuncios empresariales públicos, lo que sugiere que hay agentes informados privadamente que están explotando su privilegio cuando existe la posibilidad de obtener su mayor valor. La ITP adquiere su valor en el mercado: las compañías con mayor ITP registran un menor coeficiente de Tobin. Se concluye que el mercado parece reconocer y valorar acordemente las variables sustitutivas no observables de la probabilidad de realización de transacciones informadas (ITP) de la calidad de la conducción empresarial, tal como la heterogeneidad del comportamiento de la empresa.

A simple theoretical framework for the analysis of liability dollarization

This paper presents a simple model of debt contracts in order to analyze the conditions under which domestic residents would choose to denominate debts in ``dollars''. In the model, borrowers are producers of non-traded goods, and subject to shocks on prices. The real exchange rate varies in response to real shocks. There is a domestic unit of account; prices in terms of that unit can be shocked by a (presumably policy - induced) disturbance. Debt obligations can be denominated in either traded goods (dollarized contracts) or local currency. When real and nominal shocks are possitively correlated, dollarized contracts tend to be preferable to (non-contingent) nominal contracts when nominal shocks are large and real shocks are smallLiability Dollarization, Nominal and Real Shocks.

Banking in small open economies with aggregate liquidity shocks

I extend the traditional Diamond Dybvig framework with aggregate liquidity shocks to small open economies. Currency board may imply perfect risk sharing (with perfect credit markets), contrary to Chang and Velasco's findings (2000). With interim-date borrowing constraints and fixed exchange rates, Wallace's (1990) partial suspension of convertibility of deposits is obtained. A banking system with an international lender may implement both allocations without runs. Flexible exchange rates with local-currency denominated deposits improves risk sharing relative to fixed exchange rates when borrowing constraints are present.Departamento de Economí

A note on the credibility of bank-run-preventing devaluation policies

En esta nota proveo una noción de una política devaluatoria creíble en el contexto del modelo de Chang y Velasco (2000). Muestro que cuando el activo de largo plazo es lo suficientemente ilíquido, una política de tipo de cambio flexible es creíble. También se muestra que existe un rango no trivial para el valor de liquidación de la tecnología de inversión de largo plazo para el cual la misma política no es creíble. Finalmente, propongo un régimen de tipo de cambio flexible diferente que resulta creíble.In this note I provide a notion of a credible devaluation policy in the context of the Chang and Velasco (2000) model. I show that when the long term asset is illiquid enough a flexible exchange rate policy is credible. It is also shown that there exists a non-trivial range for the liquidation value of the long term investment technology for which the same policy is not credible. Finally I propose a different flexible exchange rate regime which is shown to be credible.Instituto de Investigaciones Económica

Life cycle, financial frictions and informal labor markets: the case of Chile

We study the implications of economic policies on household's decisions. We focus on Chile in 2019. Using a life-cycle search model and survey data, we found that an equivalent change in labor tax rates and non-contributory pensions (NCP) have opposite effects on labor markets, specifically on informality and unemployment duration. NCP offers a milder trade-off as it produces a second-order increase in informality. However, due to the presence of informal labor markets and financial frictions, non-retired agents increase their current consumption only after a tax cut. That is, a positive wealth shock can reduce consumption. When we consider the impact on welfare, as households are assumed to value only consumption, cutting taxes seems to be preferred. We characterize labor market and consumption-savings decisions. We found two effects operating in opposite directions: substitution and wealth. The latter prevails suggesting that the life cycle aspects of the labor market are critical.This work was supported by the Inter-American Development Bank [ATN/OC -14728 RG (T2528)]

UNA NOTA SOBRE LA NUEVA OLA DE DEUDA EN MONEDA EXTRANJERA EN LAS FIRMAS NO FINANCIERAS DE LATINOAMÉRICA

This paper presents new evidence on foreign-currency debt of non-financial compa-nies in six Latin-American countries, including years in the aftermath of the sub-pri-me crisis. The paper differentiates between total debt and financial debt in foreign currency. Main results indicate that some firm-specific features are key to unders-tand foreign currency debt. Exporting firms behave differently between total fore-ign-currency debt and financial currency debt. Exporters hold more total foreign-currency debt than the average firm while they hold less financial foreign-currency debt. Foreign-owned firms hold less total debt in foreign currency. Macroeconomic variables only play some role when interacting with specific firm characteristics.Este artículo presenta nueva evidencia sobre determinantes de pasivos en moneda extranjera de empresas en seis países de Latinoamérica, incluyendo períodos posteiores a la crisis sub-prime, diferenciando entre pasivos totales y financieros en mo-neda extranjera. Los resultados principales indican que ciertas características espe-cíficas son claves para entender estas deudas. Firmas que exportan deciden diferen-temente entre pasivos totales y financieros en moneda extranjera, manteniendo más deuda total y menos deuda financiera en moneda extranjera que la firma promedio. Empresas de propiedad extranjera mantienen menos pasivos totales en moneda ex-tranjera. Las variables macroeconómicas sólo importan cuando se las interactúa con tipos de empresas.&nbsp

A note on the credibility of bank-run-preventing devaluation policies

En esta nota proveo una noción de una política devaluatoria creíble en el contexto del modelo de Chang y Velasco (2000). Muestro que cuando el activo de largo plazo es lo suficientemente ilíquido, una política de tipo de cambio flexible es creíble. También se muestra que existe un rango no trivial para el valor de liquidación de la tecnología de inversión de largo plazo para el cual la misma política no es creíble. Finalmente, propongo un régimen de tipo de cambio flexible diferente que resulta creíble.In this note I provide a notion of a credible devaluation policy in the context of the Chang and Velasco (2000) model. I show that when the long term asset is illiquid enough a flexible exchange rate policy is credible. It is also shown that there exists a non-trivial range for the liquidation value of the long term investment technology for which the same policy is not credible. Finally I propose a different flexible exchange rate regime which is shown to be credible.Instituto de Investigaciones Económica

Banks with Peso - Denominated Deposits in Small Open Economies with Aggregate Liquidity Shocks

I extend the traditional Diamond Dybvig framework with aggregate liquidity shocks to small open economies. Currency board may imply perfect risk sharing (with perfect credit markets), contrary to Chang and Velasco ’s findings (2000). With interim-date borrowing constraints and fixed exchange rates, Wallace’ s (1990) partial suspension of convertibility of deposits is obtained. A banking system with an international lender may implement both allocations without runs. Flexible exchange rates with local-currency denominated deposits improves risk sharing relative to fixed exchange rates when borrowing constraints are present. It also avoids equilibrium bank runs.Facultad de Ciencias Económica

Banking in small open economies with aggregate liquidity shocks

I extend the traditional Diamond Dybvig framework with aggregate liquidity shocks to small open economies. Currency board may imply perfect risk sharing (with perfect credit markets), contrary to Chang and Velasco's findings (2000). With interim-date borrowing constraints and fixed exchange rates, Wallace's (1990) partial suspension of convertibility of deposits is obtained. A banking system with an international lender may implement both allocations without runs. Flexible exchange rates with local-currency denominated deposits improves risk sharing relative to fixed exchange rates when borrowing constraints are present.Departamento de Economí