Bank liquidity, interbank markets and monetary policy

A major lesson of the recent financial crisis is that the interbank lending marketis crucial for banks facing large uncertainty regarding their liquidity needs. Thispaper studies the efficiency of the interbank lending market in allocating funds. Weconsider two different types of liquidity shocks leading to different implications foroptimal policy by the central bank. We show that, when confronted with a distributional liquidity-shock crisis that causes a large disparity in the liquidity held amongbanks, the central bank should lower the interbank rate. This view implies that thetraditional tenet prescribing the separation between prudential regulation and monetary policy should be abandoned. In addition, we show that, during an aggregateliquidity crisis, central banks should manage the aggregate volume of liquidity. Twodifferent instruments, interest rates and liquidity injection, are therefore required tocope with the two different types of liquidity shocks. Finally, we show that failureto cut interest rates during a crisis erodes financial stability by increasing the riskof bank runs.

Nominal debt as a burden on monetary policy

We study the effects of nominal debt on the optimal sequential choice of monetary policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium. Without full commitment, the optimal sequential policy is to deplete the outstanding stock of debt progressively until these extra costs disappear. Nominal debt is therefore a burden on monetary policy, not only because it must be serviced, but also because it creates a time inconsistency problem that distorts interest rates. The introduction of alternative forms of taxation may lessen this burden, if there is enough commtiment to fiscal policy. If there is full commitment to an optimal fiscal policy, then the resulting monetary policy is the Friedman rule of zero nominal interest rates.

Monetary policy and unemployment

Much recent research has focused on the development and analysisof extensions of the New Keynesian framework that model labor marketfrictions and unemployment explicitly. The present paper describessome of the essential ingredients and properties of those models, andtheir implications for monetary policy.

Immigration policy with partisan parties

This paper analyzes the political economy of immigration when the salient electoralissue is the level of immigrants and the relevant immigration policy is the expenditurein immigration control. We consider that immigration affects voters? welfarethrough economic and non economic factors. We model political competition `a laWittman with the ideology of parties endogenously determined at equilibrium. Atequilibrium, parties propose different levels of immigration, located to the left and tothe right of the median voter?s ideal point, and combine skilled and unskilled workersamong their constituencies. Numerical simulations provide the levels of immigrationproposed by the two parties and the composition of parties? constituencies as we varythe efficacy of immigration control and the intensity of immigration aversion.

Is bank debt special for the transmission of monetary policy? Evidence from the stock market

We combine existing balance sheet and stock market data with two new datasets to studywhether, how much, and why bank lending to firms matters for the transmission of monetarypolicy. The first new dataset enables us to quantify the bank dependence of firms precisely,as the ratio of bank debt to total assets. We show that a two standard deviation increase inthe bank dependence of a firm makes its stock price about 25% more responsive to monetarypolicy shocks. We explore the channels through which this effect occurs, and find that thestock prices of bank-dependent firms that borrow from financially weaker banks display astronger sensitivity to monetary policy shocks. This finding is consistent with the banklending channel, a theory according to which the strength of bank balance sheets mattersfor monetary policy transmission. We construct a new database of hedging activities andshow that the stock prices of bank-dependent firms that hedge against interest rate riskdisplay a lower sensitivity to monetary policy shocks. This finding is consistent with aninterest rate pass-through channel that operates via the direct transmission of policy ratesto lending rates associated with the widespread use of floating-rates in bank loans and creditline agreements.

Monetary policy and rational asset price bubbles

I examine the impact of alternative monetary policy rules on arational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interestrates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. Theoptimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper'smain findings call into question the theoretical foundations of the casefor "leaning against the wind" monetary policies.

The EU strategy of policy convergence with its neighbours in the area of trade

The objective of this paper is to ascertain whether the EU is seeking policy convergence with its neighbours in the area of trade by means of EU regulations. For each trade- related topic, we carried out a content analysis of the available official documents to identify the model of relations that has been established between the EU and four neighbouring countries (Morocco, Algeria, Ukraine and Georgia). The findings indicate that Europeanization is the EU strategy in most cases. However, adaptation to European regulations is only a long-term aim. When international regulations exist in a specific area, the EU usually demands the internationalization of a country¿s regulations as a first step. When there are no international regulations, the convergence process is established on the basis of bilaterally developed norms. EU strategy also varies depending on the country. Its relations with Algeria are the most particular. We conclude that the EU is promoting policy convergence with its neighbours in the area of trade mainly on the basis of international and bilaterally-developed regulations.

The EU strategy of policy convergence with its neighbours in the area of trade

The objective of this paper is to ascertain whether the EU is seeking policy convergence with its neighbours in the area of trade by means of EU regulations. For each trade- related topic, we carried out a content analysis of the available official documents to identify the model of relations that has been established between the EU and four neighbouring countries (Morocco, Algeria, Ukraine and Georgia). The findings indicate that Europeanization is the EU strategy in most cases. However, adaptation to European regulations is only a long-term aim. When international regulations exist in a specific area, the EU usually demands the internationalization of a country¿s regulations as a first step. When there are no international regulations, the convergence process is established on the basis of bilaterally developed norms. EU strategy also varies depending on the country. Its relations with Algeria are the most particular. We conclude that the EU is promoting policy convergence with its neighbours in the area of trade mainly on the basis of international and bilaterally-developed regulations.

Deciding the sale of a life policy in the viatical market: Implications on individual welfare

[cat] En aquest article, es presenta un model econòmic que permet determinar la venda o no d'una pòlissa de vida (total o en part) per part d'un assegurat malalt terminal en el mercat dels viatical settlements. Aquest mercat va aparèixer a finals de la dècada dels 80 a conseqüència de l'epidèmia de la SIDA. Actualment, representa una part del mercat dels life settlements. Les pòlisses que es comercialitzen en el mercat dels viaticals són aquelles on l'assegurat és malalt terminal amb una esperança de vida de dos anys o menys. El model és discret i considera només dos períodes (anys), ja que aquesta és la vida residual màxima que contempla el mercat. L'agent posseix una riquesa inicial que ha de repartir entre consum i herència. S'introdueix en primer lloc la funció d'utilitat esperada del decisor i, utilitzant programació dinàmica, es dedueix l'estratègia que reporta una utilitat més gran (no vendre/vendre (en part) la pòlissa en el moment zero/vendre (en part) la pòlissa en el moment ú). L'òptim depèn del preu de la pòlissa venuda i de paràmetres personals de l'individu. Es troba una expressió analítica per l'estratègia òptima i es realitza un anàlisi de sensibilitat.

Optimal fiscal policy in overlapping generations models

[eng] This paper provides, from a theoretical and quantitative point of view, an explanation of why taxes on capital returns are high (around 35%) by analyzing the optimal fiscal policy in an economy with intergenerational redistribution. For this purpose, the government is modeled explicitly and can choose (and commit to) an optimal tax policy in order to maximize society's welfare. In an infinitely lived economy with heterogeneous agents, the long run optimal capital tax is zero. If heterogeneity is due to the existence of overlapping generations, this result in general is no longer true. I provide sufficient conditions for zero capital and labor taxes, and show that a general class of preferences, commonly used on the macro and public finance literature, violate these conditions. For a version of the model, calibrated to the US economy, the main results are: first, if the government is restricted to a set of instruments, the observed fiscal policy cannot be disregarded as sub optimal and capital taxes are positive and quantitatively relevant. Second, if the government can use age specific taxes for each generation, then the age profile capital tax pattern implies subsidizing asset returns of the younger generations and taxing at higher rates the asset returns of the older ones.

Trade policy and regional inequalities

This paper aims to analyse the effects of trade policies in the pattern of regional inequalities within a country. Inspired firstly, by the debate concerning the role of protectionist policies in the settlement of a pattern of striking regional inequalities in the Spanish industrialisation process and secondly, by current evidence of an increase in these inequalities following the entry of Spain in the EU (1986), we set a model that shows that trade liberalisation increases regional inequalities.

Organisational adaptation of multi-agent systems in a peer-to-peer scenario

Organisations in Multi-Agent Systems (MAS) have proven to be successful in regulating agent societies. Nevertheless, changes in agents' behaviour or in the dynamics of the environment may lead to a poor fulfilment of the system's purposes, and so the entire organisation needs to be adapted. In this paper we focus on endowing the organisation with adaptation capabilities, instead of expecting agents to be capable of adapting the organisation by themselves. We regard this organisational adaptation as an assisting service provided by what we call the Assistance Layer. Our generic Two Level Assisted MAS Architecture (2-LAMA) incorporates such a layer. We empirically evaluate this approach by means of an agent-based simulator we have developed for the P2P sharing network domain. This simulator implements 2-LAMA architecture and supports the comparison between different adaptation methods, as well as, with the standard BitTorrent protocol. In particular, we present two alternatives to perform norm adaptation and one method to adapt agents'relationships. The results show improved performance and demonstrate that the cost of introducing an additional layer in charge of the system's adaptation is lower than its benefits.

Deciding the sale of a life policy in the viatical market: Implications on individual welfare

[cat] En aquest article, es presenta un model econòmic que permet determinar la venda o no d'una pòlissa de vida (total o en part) per part d'un assegurat malalt terminal en el mercat dels viatical settlements. Aquest mercat va aparèixer a finals de la dècada dels 80 a conseqüència de l'epidèmia de la SIDA. Actualment, representa una part del mercat dels life settlements. Les pòlisses que es comercialitzen en el mercat dels viaticals són aquelles on l'assegurat és malalt terminal amb una esperança de vida de dos anys o menys. El model és discret i considera només dos períodes (anys), ja que aquesta és la vida residual màxima que contempla el mercat. L'agent posseix una riquesa inicial que ha de repartir entre consum i herència. S'introdueix en primer lloc la funció d'utilitat esperada del decisor i, utilitzant programació dinàmica, es dedueix l'estratègia que reporta una utilitat més gran (no vendre/vendre (en part) la pòlissa en el moment zero/vendre (en part) la pòlissa en el moment ú). L'òptim depèn del preu de la pòlissa venuda i de paràmetres personals de l'individu. Es troba una expressió analítica per l'estratègia òptima i es realitza un anàlisi de sensibilitat.

Optimal fiscal policy in overlapping generations models

[eng] This paper provides, from a theoretical and quantitative point of view, an explanation of why taxes on capital returns are high (around 35%) by analyzing the optimal fiscal policy in an economy with intergenerational redistribution. For this purpose, the government is modeled explicitly and can choose (and commit to) an optimal tax policy in order to maximize society's welfare. In an infinitely lived economy with heterogeneous agents, the long run optimal capital tax is zero. If heterogeneity is due to the existence of overlapping generations, this result in general is no longer true. I provide sufficient conditions for zero capital and labor taxes, and show that a general class of preferences, commonly used on the macro and public finance literature, violate these conditions. For a version of the model, calibrated to the US economy, the main results are: first, if the government is restricted to a set of instruments, the observed fiscal policy cannot be disregarded as sub optimal and capital taxes are positive and quantitatively relevant. Second, if the government can use age specific taxes for each generation, then the age profile capital tax pattern implies subsidizing asset returns of the younger generations and taxing at higher rates the asset returns of the older ones.

Trade policy and regional inequalities

This paper aims to analyse the effects of trade policies in the pattern of regional inequalities within a country. Inspired firstly, by the debate concerning the role of protectionist policies in the settlement of a pattern of striking regional inequalities in the Spanish industrialisation process and secondly, by current evidence of an increase in these inequalities following the entry of Spain in the EU (1986), we set a model that shows that trade liberalisation increases regional inequalities.