Related papers: Optimal Taxation with Endogenous Default under Inc…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
We study optimal taxation when citizens are not fully confident that the government will transform tax revenue into useful public goods. In an otherwise standard Ramsey framework, a representative agent values a public good financed by…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
This paper shows that with mechanistic primary budget rules and with some simple assumptions on interest rates the well-known debt dynamics equation transforms into the infamous logistic map. The logistic map has very peculiar and rich…
We consider the relationship between economic activity and intervention, including monetary and fiscal policy, using a universal dynamic framework. Central bank policies are designed for growth without excess inflation. However,…
We study a dynamical model of interconnected firms which allows for certain market imperfections and frictions, restricted here to be myopic price forecasts and slow adjustment of production. Whereas the standard rational equilibrium is…
We adress the maximization problem of expected utility from terminal wealth. The special feature of this paper is that we consider a financial market where the price process of risky assets can have a default time. Using dynamic…
We present an elementary analysis of the dynamical aspects of the GDP / government surplus multiplier with relevance to the assessment of a country's debt repayment policy. We show the (at first) counter intuitive result that in order to…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…
We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…
We study financial networks with debt contracts and credit default swaps between specific pairs of banks. Given such a financial system, we want to decide which of the banks are in default, and how much of their liabilities can these…
In this paper, I consider a simple heterogeneous agents model of a production economy with uncertain climate change and examine constrained efficient carbon taxation. If there are frictionless, complete financial markets, the simple model…
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…
We discuss a class of debt management problems in a stochastic environment model. We propose a model for the debt-to-GDP (Gross Domestic Product) ratio where the government interventions via fiscal policies affect the public debt and the…
We study how governments promote social welfare through the design of contracting environments. We model the regulation of contracting as default delegation: the government chooses a delegation set of contract terms it is willing to…
During the last two years, Europe has been facing a debt crisis, and Greece has been at its center. In response to the crisis, drastic actions have been taken, including the halving of Greek debt. Policy makers acted because interest rates…
This paper develops a new model of business cycles. The model is economical in that it is solved with an aggregate demand-aggregate supply diagram, and the effects of shocks and policies are obtained by comparative statics. The model builds…
The paper studies a system of Hamilton-Jacobi equations, arising from a stochastic optimal debt management problem in an infinite time horizon with exponential discount, modeled as a noncooperative interaction between a borrower and a pool…
The optimal (`equilibrium') macroscopic properties of an economy with $N$ industries endowed with different technologies, $P$ commodities and one consumer are derived in the limit $N\to\infty$ with $n=N/P$ fixed using the replica method.…