Pedro Gomis-Porqueras

Optimal Monetary Policy in a Model of Money and Credit

The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for the enforcement of private liabilities. If it is too costly for the government to obtain information regarding private transactions, then it relies on the public information generated by the private credit system. If not all private transactions are publicly reported, the government has imperfect public information to implement monetary policy. In this case, the authors show that there is no incentive-feasible policy that can implement the socially efficient allocation. Finally, they characterize the optimal policy for an economy with a low record-keeping cost and a large number of public transactions, which results in a positive long-run inflation rate.

Currency Substitution in Latin America: Lessons from the 1990s

The authors study how agents in Latin America allocate their balances between dollar-denominated and domestic currency-denominated accounts. They empirically determine the causes of currency substitution, its significance in recent banking crises, and the link between currency substitution, and volatility in macroeconomic aggregates. Their findings: The ratio of dollar deposits to broad money is strongly influenced by expectations of depreciation. They show that depositors in Latin America face some uncertainty and frictions when making their portfolio decisions. They explore the macroeconomic consequences of a dollarized economy. In particular, they find that, in the presence of currency substitution, past banking crises are good predictors of future crises. In other words, having a highly dollarized economy, increases the response of the banking system when there is a bad shock, which halts the outflow of capital. Once an economy is in crisis, however, having more dollar-denominated deposits in the banking system, increases the probability of a longer crisis in the future, because it increases exchange rate exposure in an already weak banking system. Finally, they show that the volatility of macroeconomic variables linked to the financial system, increases whenever the economy becomes more dollarized, which in turn makes the choice of monetary targets more difficult.

Consequences of Modeling Habit Persistence

In this paper, we study the stationary and non-stationary equilibria of a deterministic, pure exchange, two-period overlapping generations model with habit persistence. We show that preferences with multiplicative habits can lead to quite different equilibrium outcomes compared to subtractive ones. The two most commonly adopted habit specifications can differ in terms of homotheticity, gross substitutability, and uniqueness of equilibria. We illustrate these differences in terms of steady state equilibria, as well as local dynamics.

Quantifying the Shadow Economy: Measurement with Theory

We construct a dynamic, general equilibrium model of tax evasion where agents choose to report some of their income. Unreported income requires using a payment method that avoids recordkeeping – cash. Trade using cash to avoid taxes is the theoretical measure of the shadow economy from our model. We then calibrate our model using money, interest rate and GDP data to back out the size of the shadow economy for a sample of 30 countries and compare our estimates to traditional ad hoc estimates. Our results generate reasonably larger estimates for the size of the shadow economy than exist in previous literature.

A Macroeconomic Analysis of Obesity

This paper tries to understand the underlying causes of the rapid increase in obesity rates over recent decades. In particular, we propose a dynamic general equilibrium model to derive the quantitative implications of a decline in the relative (monetary and time) cost of food prepared away from home on the caloric intake of the average American adult over the last forty years. Two channels that lower this relative cost are considered. First, productivity improvements in the production of food prepared away from home. We and that this channel is qualitatively consistent with expenditure trends in food items, but falls short of accounting for the magnitude of the observed changes. We then consider actual declines in income taxes and in the gender wage gap, which increase the cost of preparing food at home from scratch. Our model accounts for three quarters of the observed changes in calorie consumption, and is consistent with trends in aggregate food expenditures, time use, and key macroeconomic variables. Our results indicate that changes in the relative cost of food prepared away from home play an important role in our understanding of the increased weight of the American population during the last 40 years.

Global dynamics in macroeconomics: an overlapping generations example

In this paper, we present some techniques used in the dynamical systems literature that let us characterize the stable and unstable manifolds of a given dynamical system. As a result, we can study how an economy behaves as it moves far away from the steady state in an environment where economic agents do not face uncertainty. The underlying idea behind these methods is to compute the manifolds nonlocally by exploiting an invariance condition that analytically describes these manifolds. In order to illustrate these techniques, we present a general equilibrium model under two different policy regimes demonstrating that local and global dynamics of an economic system can be substantially different.

Optimal Monetary and Fiscal Policies in a Search-Theoretic Model of Money and Unemployment

In this paper we study the optimal monetary and fiscal policies of a general equilibrium model of unemployment and money with search frictions both in labor and goods markets as in Berentsen, Menzio and Wright (2010). We abstract from revenue-raising motives to focus on the welfare-enhancing properties of optimal policies. We show that some of the inefficiencies in the Berentsen, Menzio and Wright (2010) framework can be restored with appropriate fiscal policies. In particular, when lump sum monetary transfers are possible, a production subsidy financed by money printing can increase output in the decentralized market and a vacancy subsidy financed by a dividend tax even when the Hosios’ rule does not hold.

MONEY, CAPITAL, AND EXCHANGE RATE FLUCTUATIONS

We explore how the informational frictions underlying monetary exchange affect international exchange rate dynamics. Our perfectly flexible price model is capable of producing endogenously rigid international relative prices in response to technology and monetary shocks. The model is capable of accounting for the empirical regularities that the real and nominal exchange rates are more volatile than U.S. output, and that the two are positively and perfectly correlated. The model is also consistent with other standard real business cycle facts for the United States.

An empirical analysis of patents flows and R&D flows around the world

In this article, we empirically investigate the effect of Research and Development (R&D) flows on patent flows around the world. We do this using an unbalanced panel consisting primarily of Organization for Economic Co-operation and Development (OECD) countries that have both patent and R&D expenditure information broken down by domestic and foreign sources. Our analysis shows that even among a fairly homogeneous group of countries, the sources of patents and R&D differ substantially. Using a dynamic panel framework, we find that domestic R&D per capita increases domestic patents per capita only for the European Patent Convention (EPC) countries that already have a decentralized approach to innovation. Foreign R&D per capita increases foreign patents per capita in all countries even though foreign R&D constitutes a very small fraction of total R&D. We find that some of these differences can be attributed to the locations of the patent applications, including those to the European Patent Office (EPO), United States Patent and Trademark Office (USPTO) and triadic patent applications to the EPO, USPTO and Japan Patent Office (JPO) simultaneously.

Oil Price Dynamics in a Real Business Cycle Model

We show the importance of endogenous oil prices and production in the real business cycle framework. Endogenising these variables improves the model’s predictions of business cycle statistics, oil related and non-oil related, relative to a situation where either is exogenous. This result is robust to the standard extensions (variable capacity utilisation and monopolistic competition) used in the literature. In particular, we first show that with either exogenous oil prices or production the standard real business cycle model and variants cannot match the oil-related and business cycle facts. In contrast, when both of these variables are endogenous, we can substantially improve the corresponding co-movements and slightly improve standard business cycle properties for consumption and investment.