This paper develops an affine term structure for the valuation of money market funds. This valuation framework is then used to consider the economic implications of funds that are supported by a capital buffer. The main findings are twofold. First, relatively small capital buffers are capable of absorbing daily fluctuations between a fund’s shadow price and its amortized cost. For example, a fu...

Standard real business cycle models must rely on total factor productivity (TFP) shocks to explain the observed comovement of consumption, investment, and hours worked. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption can generate comovement in the absence of TFP shocks. Intertemporal substitution of goods and leisure induces como...

The Response of Consumption in Russian Households to Economic Shocks This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994 – 1998), Russia experienced two major economic crises. Both featured extreme movements in the real ruble-dollar exchange rate. The price of oil, which is typically th...

This paper uses a panel structural vector autoregressive (VAR) model to investigate the extent to which global financial conditions, i.e., a global risk-free interest rate and global financial risk, and country spreads contribute to macroeconomic fluctuations in emerging countries. The main findings are: (1) Global financial risk shocks explain about 20 percent of movements both in the country ...

In this paper, I explore the optimal extent to which the central bank should disseminate information among private agents. Individual firms are assumed to have diverse private information, and the central bank provides public information either implicitly, by setting its policy instrument, or explicitly, by making announcements about its short-run targets. The optimal degree of economic transpa...

This paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers. Because output is stochastic (we allow for idiosyncratic and aggregate shocks), there may be default ex post. We compare equilibria with and without political intervention. Intervention takes the form of a moratorium and is decided by voting. When bad economic shock...

Businesses and households face substantial idiosyncratic and aggregate economic risk. As a general principle, economic risk for businesses reflects the myriad of factors that impact the profitability of the business, while for individuals economic risk reflects the myriad of factors that impact the earnings and employment outcomes of household members. While aggregate risk gets most of the head...

In this paper we examine the large shocks due to major economic or financial events that affected U.S. macroeconomic time series on the period 1860–1988, using outlier methodology. We show that these shocks can have temporary or permanent effects on the series and that most of them can be explained by the Great Depression, World War II and recessions as well as by monetary policy for the intere...

Ireland’s participation in stage three of Economic and Monetary Union precludes exchange rate adjustment in response to asymmetric shocks. A Structural VAR model is used to decompose the effects of asymmetric supply, demand and nominal disturbances on macroeconomic imbalances between Ireland and the UK and on the Irish pound-sterling exchange rate. The results indicate that supply shocks accoun...

This paper argues that self-fulfilling beliefs in credit conditions can generate endogenously persistent business cycle dynamics. We develop a tractable dynamic general equilibrium model with idiosyncratic firm productivity shocks. Capital from less productive firms is lent to more productive ones in the form of credit secured by collateral and also as unsecured credit based on reputation. A dy...