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Author:Espino, Emilio 

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock lead to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Working Paper
Domestic Policies and Sovereign Default

A model with two essential elements, sovereign default and distortionary fiscal and monetary policies, explains the interaction between sovereign debt, default risk and inflation in emerging countries. We derive conditions under which monetary policy is actively used to support fiscal policy and characterize the intertemporal tradeoffs that determine the choice of debt. We show that in response to adverse shocks to the terms of trade or productivity, governments reduce debt and deficits, and increase inflation and currency depreciation rates, matching the patterns observed in the data for ...
Working Papers , Paper 2020-017

Journal Article
Stylized Facts on the Organization of Small Business Partnerships

The authors study the internal organization of small business partnerships and focus on the number of owners and ownership structure and the dynamics of these variables. They find that partnerships tend to have a small number of owners with equal distribution of ownership shares. Moreover, while partnerships with equally distributed shares tend to keep this distribution constant, those with unequally distributed shares tend to move toward more equal distribution over time. The authors highlight that these facts are in line with the theory of private information in small business partnerships ...
Review , Volume 98 , Issue 4 , Pages 297-310

Journal Article
External Shocks versus Domestic Policies in Emerging Markets

Debt crises in emerging markets have been linked to large fiscal deficits, high inflation rates, and large devaluations. This article studies a sovereign default model with domestic fiscal and monetary policies to understand Argentina's experience during the 2000s commodity boom (2005–2017), following the default of 2001. The model suggests that domestic policies played a critical role in Argentina's poor economic performance. Despite exceptionally favorable terms of trade, a rise in government spending led to higher taxation, inflation and currency depreciation, and lower output. Economic ...
Review , Volume 105 , Issue 2 , Pages 108-121

Working Paper
Domestic Policies and Sovereign Default

A model with two essential elements, sovereign default and distortionary fiscal and monetary policies, explains the interaction between sovereign debt, default risk and inflation in emerging countries. We derive conditions under which monetary policy is actively used to support fiscal policy and characterize the intertemporal tradeoffs that determine the choice of debt. We show that in response to adverse shocks to the terms of trade or productivity, governments reduce debt and deficits, and increase inflation and currency depreciation rates, matching the patterns observed in the data for ...
Working Papers , Paper 2020-017

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock led to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Journal Article
How Does Informal Employment Affect the Design of Unemployment Insurance and Employment Protection?

The authors use a simple model to study the optimal design of unemployment insurance and employment protection. Workers are risk averse and face the possibility of unemployment. Firms are risk neutral and face random shocks to productivity. Workers can participate in a shadow economy, or informal sector. The model yields several lessons. First, countries should encourage formal employment to address the issue of informal employment. In extreme cases, such encouragement translates into high severance payments and negative payroll taxes. Along these same lines, unemployment payments cannot be ...
Review , Volume 97 , Issue 2

Working Paper
Investment and Bilateral Insurance

Private information may limit insurance possibilities when two agents get together to pool idiosyncratic risk. However, if there is capital accumulation, bilateral insurance possibilities may improve because misreporting distorts investment. We show that if one of the Pareto weights is sufficiently large, that agent does not have incentives to misreport. This implies that, under some conditions, the full information allocation is incentive compatible when agents have equal Pareto weights. In the long run, either one of the agents goes to immiseration, or both agents’ lifetime utilities are ...
Working Papers , Paper 2013-001

Working Paper
Seigniorage and Sovereign Default: The Response of Emerging Markets to COVID-19

Monetary policy affects the tradeoffs faced by governments in sovereign default models. In the absence of lump-sum taxation, governments rely on both distortionary taxes and seigniorage to finance expenditure. Furthermore, monetary policy adds a time-consistency problem in debt choice, which may mitigate or exacerbate the incentives to accumulate debt. A deterioration of the terms-of-trade leads to an increase in sovereign-default risk and inflation, and a reduction in growth, which are consistent with the empirical evidence for emerging economies. An unanticipated shock resembling the ...
Working Papers , Paper 2020-017

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock lead to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

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