Welfare-improving debt constraints

We show that in economies without liquidity frictions, but with incomplete financial markets, when agents are infinitely lived and uniformly impatient, money can still be essential (that is, have a positive price in equilibrium) if and only if each agent has binding debt constraints at some node of her life span. That is, contrary to what might be expected, in the absence of a very productive financial market, frictions induced by debt constraints create some room for improving efficiency, by allowing money to have a role in transferring wealth across dates and states of nature.Cashless economies, Binding debt constraints, Fundamental value of money.

Trading and rational security pricing bubbles

URL des Documents de travail : https://centredeconomiesorbonne.univ-paris1.fr/document-de-travail-du-ces/Documents de travail du Centre d'Economie de la Sorbonne 2012.10 - ISSN : 1955-611XSecurities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth.Toute théorie des titres doit inclure une théorie des pensions livrées. Sans elle, on ne peut comprendre la valeur de possession associée à la possession physique d'un titre. Sans pensions livrées, il y a confusion entre l'émission des titres et leur vente à découvert ; entre marchés primaire et secondaire. Notre théorie des pensions livrées nous permet une telle distinction. Nous examinons les chaînes de Ponzi et des bulles spéculatives au sein du marché secondaire uniquement. On imagine donc une situation somme toute d'un grand réalisme pratique : celle où le marché primaire est inaccessible. Nous le supposerons fermé. Nous montrons que les mêmes arrangements institutionnels qui limitent la rehypothécation limitent les chaînes de Ponzi au sein du marché secondaire mais semblent favoriser la présence de bulles spéculatives qui existent même pour les titres en quantité positive quand les marchés sont incomplets. L'ouverture libre du marché primaire élimineraient alors de telle bulles. Nous donnons un exemple d'existence de bulle spéculative secondaire alors même que la richesse initiale est limitée

Trading and rational security pricing bubbles

Securities markets theory includes repo and distinguishes shorting from issuing. Here we revisit whether trading alone can give rise to Ponzi schemes and rational bubbles. We show that under the same institutional arrangements that limit re-hypothecation (e.g., through segregated haircut rules or explicit leverage constraints on haircut collecting dealers), (1) trading Ponzi schemes are prevented without having to assume uniform impatience, (2) for securities in positive net supply, bubbles are ruled out under complete markets but may occur when markets are incomplete. We give an example of such a bubble, under a finite present value of wealth.Repo, short sale, bubble, repo specialness, Ponzi scheme, leverage, trading.

The Dollar Squeeze of the Financial Crisis

By Covered Interest rate Parity (CIP), the FX swap implied currency interest rates should coincide with actual interest rates. When a difference occurs, the residual is referred to as the cross currency basis. We link the Euro-Dollar currency basis (e.g. in 2008) to shadow prices of dollar funding constraints and interpret the basis as the relative physical possession value of the scarcer currency, or the "convenience yield" associated with that currency. This is similar to specialness in repro markets, expressing the physical possession value of a security. We examine how the coordinated central banks intervention can reduce the currency basis.FX swaps, repo, Euro-Dollar currency basis, the 2008 dollar squeeze, possession.

Activated sludge process monitoring through in-situ NIR spectral analysis

The application of near infrared (NIR) spectroscopy for industrial process monitoring is achieving increasing importance over the last twenty years. In fact, the real time monitoring capacity of NIR spectroscopy is a very important feature for process monitoring, prediction and control as it allows a fast evaluation of the state of the process. However, the application of NIR spectroscopy in wastewater treatment processes is still to be explored. Although some applications of the technique for wastewater monitoring have been reported in the literature, there is still a need for more investigation related with applications, limitations and advantages of the technique when compared with other methods. An activated sludge reactor for aerobic treatment of a complex medium was monitored in situ with a NIR transflectance probe and traditional chemical parameters analysed off-line. NIR spectrophotometric data measured at the feed, reactor and settler were coupled to principal component analysis (PCA) to infer about the ability of this monitoring system to detect changes in the feed influent. The analysis of the score plots resulting from PCA permitted to identify the moments at which the perturbations occurred and to follow the consequent instability induced in the reactor till the day where the system is recuperated. The promising results obtained, suggest the interest in more detailed studies on the feasibility of NIR spectroscopy as an alternative method for monitoring and control of wastewater treatment processes.Fundação para a Ciência e a Tecnologia (FCT) - POCTI/AMB/60141/2001

Fiat money and the value of binding portfolio constraints

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience

Activated sludge process monitoring through in situ near-infrared spectral analysis

The application of near infrared (NIR) spectroscopy for industrial process monitoring is achieving increasing importance over the last twenty years. In fact, the real time monitoring capacity of NIR spectroscopy is a very important feature for process monitoring, prediction and control as it allows a fast evaluation of the state of the process. However, the application of NIR spectroscopy in wastewater treatment processes is still to be explored. Although some applications of the technique for wastewater monitoring have been reported in the literature, there is still a need for more investigation related with applications, limitations and advantages of the technique when compared with other methods. An activated sludge reactor for aerobic treatment of a complex medium was monitored in situ with a NIR transflectance probe and traditional chemical parameters analysed off-line. NIR spectrophotometric data measured at the feed, reactor and settler were coupled to principal component analysis (PCA) to infer about the ability of this monitoring system to detect changes in the feed influent. The analysis of the score plots resulting from PCA permitted to identify the moments at which the perturbations occurred and to follow the consequent instability induced in the reactor till the day where the system is recuperated. The promising results obtained, suggest the interest in more detailed studies on the feasibility of NIR spectroscopy as an alternative method for monitoring and control of wastewater treatment processes.Fundação para a Ciência e a Tecnologia (Portugal) - POCTI/AMB/60141/2001

Fiat money and the value of binding portfolio constraints

We establish necessary and sufficient conditions for the individual optimality of a consumption-portfolio plan in an infinite horizon economy where agents are uniformly impatient and fiat money is the only asset available for inter-temporal transfers of wealth. Next, we show that fiat money has a positive equilibrium price if and only if for some agent the zero short sale constraint is binding and has a positive shadow price (now or in the future). As there is always an agent that is long, it follows that marginal rates of inter-temporal substitution never coincide across agents. That is, monetary equilibria are never full Pareto efficient. We also give a counter-example illustrating the occurrence of monetary bubbles under incomplete markets in the absence of uniform impatience