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Author:Chari, V. V. 

Working Paper
On the robustness of herds

Herd behavior is argued by many to be present in many markets. Existing models of such behavior have been subjected to two apparently devastating critiques. The continuous investment critique is that in the basic model herds disappear if simple zero-one investment decisions are replaced by the more appealing assumption that investment decisions are continuous. The price critique is that herds disappear if, as seems natural, other investors can observe asset market prices. We argue that neither critique is devastating. We show that once we replace the unappealing exogenous timing assumption of ...
Working Papers , Paper 622

Conference Paper
Inflation, growth, and financial intermediation

Proceedings , Volume 78 , Issue May , Pages 41-58

New Keynesian models: not yet useful for policy analysis

Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian ...
Staff Report , Paper 409

Asking the right questions about the IMF

1998 Annual Report essay
Annual Report

Journal Article
How the U.S. Treasury should auction its debt

The U.S. Treasury could raise more revenue if it changed the way it auctions its debt. Under the current procedure, all bidders whose competitive bids for Treasury securities are accepted pay the prices they bid; different winning bidders, that is, pay different prices. Instead, economic theory says, all winning bidders should all pay the same price?that of the highest bid not accepted, or the price that just clears the market. This procedural change would increase the revenue that Treasury auctions raise primarily because it would decrease the amount of resources that bidders would spend ...
Quarterly Review , Volume 16 , Issue Fall , Pages 3-12

Hot money

Recent empirical work on financial crises documents that crises tend to occur when macroeconomic fundamentals are weak, but that even after conditioning on an exhaustive list of fundamentals, a sizable random component to crises and associated capital flows remains. We develop a model of herd behavior consistent with these observations. Informational frictions together with standard debt default problems lead to volatile capital flows resembling hot money and financial crises. We show that repaying debt during difficult times identifies a government as financially resilient, enhances its ...
Staff Report , Paper 228

Working Paper
Inside money, outside money and short term interest rates

Working Paper Series, Macroeconomic Issues , Paper 95-13

Discussion Paper
Financial Repression: Evidence and Theory

?Financial repression??policies that allow a government to place its debt with financial institutions at relatively low interest rates?has been used widely for centuries. This essay focuses on one important form of repression: requiring financial intermediaries to hold more government bonds than they would if policies didn?t require it. We argue that this policy should only be used when the government has an urgent need to issue debt and has difficulty issuing new debt because of potential lender doubts about the government?s ability to repay. {{p}} This research suggests that policies that ...
Economic Policy Paper , Paper 16-4

Journal Article
The simple analytics of commodity futures markets: do they stabilize prices? Do they raise welfare?

This paper uses a simple, graphical approach to analyze what happens to commodity prices and economic welfare when futures markets are introduced into an economy. It concludes that these markets do not necessarily make prices more or less stable. It also concludes that, contrary to common belief, whatever happens to commodity prices is not necessarily related to what happens to the economic welfare of market participants: even when futures markets reduce the volatility of prices, some people can be made worse off. These conclusions come from a series of models that differ in their assumptions ...
Quarterly Review , Volume 4 , Issue Sum , Pages 12-24

International coordination of fiscal policy in limiting economies

We examine the limiting behavior of cooperative and noncooperative fiscal policies as countries? market power goes to zero. We show that these policies converge if countries raise revenues through lump-sum taxation. However, if there are unremovable domestic distortions, such as distorting taxes, there can be gains to coordination even when a single country?s policy cannot affect world prices. These results differ from the received wisdom in the optimal tariff literature. The key distinction is that, unlike in the tariff literature, the spending decisions of governments are explicitly modeled.
Staff Report , Paper 121


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