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Journal Article
Borrowing constraints and asset market dynamics: evidence from the Pacific Basin
This paper estimates a linearized, stochastic version of Kiyotaki and Moore's (1997) credit cycle model, using land price data from Hong Kong, Japan, and Korea. It is shown that the welfare costs of borrowing constraints are positively related to the persistence of (detrended) land price fluctuations. When the residual demand curve for land is inelastic and the steady state share of land held by the constrained sector is less than 30 percent, welfare costs are less than 1 percent GDP in all countries. However, the strained sector becomes more important and as the elasticity of ...
Journal Article
International trade and U.S. labor market trends
Working Paper
A dynamic model of export competition, policy coordination and simultaneous currency collapse
This paper offers a game-theoretic interpretation of the recent currency crisis in Asia. Specifically, we argue that the 'price wars during booms' logic of Rotemberg and Saloner (1986) can be used to explain the nearly simultaneous devaluation of several Asian currencies during the summer of 1997. The idea is as follows. Since each of these countries relies heavily on exports to the U.S. pressures for competitive devaluations naturally arise. ; We view the historical tendency of these countries to peg to the dollar as a way to avoid these pressures. However, it must be in the ...
Working Paper
A comparison of discount rate models using international stock market data
This paper compares the ability of four discount rate models to explain the cross-sectional and time-series variation of stock returns in the U.S., Japan, England, Germany, and Canada. The data consist of quarterly returns (in dollars) on Morgan Stanley's Capital International indices for the period 1972 through 1991. The following four models are considered: (1) A consumption CAPM model, linking the discount rate to the intertemporal marginal rate of substitution in consumption, (2) A production CAPM model, linking the discount rate to the intertemporal marginal rate of transformation in ...
Journal Article
Why attack a currency board?
Journal Article
The role of relative performance in bank closure decisions
This paper studies a banking industry subject to common and idiosyncratic shocks. We compare two types of regulatory closure rules: (1) an absolute closure rule, which closes banks when their assetliability ratios fall below a given threshold, and (2) a relative closure rule, which closes banks when their assetliability ratios fall sufficiently below the industry average. There are two main results: First, relative closure rules imply forbearance during bad times, defined as adverse realizations of the common shock. This forbearance occurs for incentive reasons, not because of ...
Working Paper
The role of relative performance in bank closure decisions
This paper studies a competitive banking industry subject to common and idiosyncratic shocks. The induced correlation across bank portfolio returns can be used by a regulator to improve inferences about bank portfolio choices. We compare two types of closure rules: (1) an 'absolute closure rule', which closes banks when their own individual asset/liability ratios fall below a given threshold, and (2) a 'relative closure rule', which closes banks when their asset/liability ratios fall below the industry average by a given amount. ; Two main results emerge from the model. First, a relative ...
Working Paper
Borrowing constraints and asset market dynamics: evidence from the Pacific Basin
This paper estimates a linearized, stochastic version of Kiyotaki and Moore's (1997) credit cycle model, using land price data from Hong Kong, Japan, and Korea. It is shown that the welfare costs of borrowing constraints are positively related to the persistence of (de-trended) land price fluctuations. When the residual demand curve for land is inelastic and the steady state share of land held by the constrained sector is less than 30 percent, welfare costs are less than 1 percent of GDP in all countries. However, the costs of borrowing constraints rise quickly as the constrained sector ...
Journal Article
Generational accounting in open economies
Using data on U.S. and Japanese government debt, we calibrate a version of Weil's (1989) model and study the international and intergenerational consequences of recent fiscal policy. Assuming debt/GDP ratios stabilize at current levels, the model implies: (1) the world real interest rate rises by fewer than two basis points; (2) the United States runs small but persistent external deficits; and (3) current generations in the United States experience a slight increase in wealth, while future generations both at home and abroad suffer analogous decreases. Most of the wealth effects are ...
Journal Article
Export competition and contagious currency crises