Managing the maturity structure of government debt

It is known that a government can implement the optimal complete-market Ramsey allocations by issuing non-contingent bonds of different maturities. The implied optimal maturity structure is time- and state-invariant—i.e. it is not actively managed. I construct a model where the Ramsey allocations can be implemented with active management of the maturity structure. In a numerical example that reflects the time-series properties of the British government's expenditure during the 18th century, its historic pattern of maturity management is replicated.     

Sovereign debt disputes: A database on government coerciveness during debt crises

This paper measures “debt disputes” between governments and foreign private creditors in periods of sovereign debt crises. We construct an index of government coerciveness, consisting of 9 objective sub-indicators. Each of these sub-indicators captures unilateral government actions imposed on foreign banks and bondholders. The results provide the first systematic account of debt crises that goes beyond a binary categorization of default versus non-default. Overall, government behavior and rhetoric show a strong variability, ranging from highly confrontational to very smooth crisis resolution processes. In a preliminary analysis on the determinants of coercive behavior, we find political institutions to be significant, while economic and financial factors play a lesser role. These results open up an agenda for future research.     

On the irrelevance of government debt when taxes are distortionary

We consider a government that can only raise funds by levying distortionary taxes. We allow the government to collect taxes in a given period that are based on incomes earned in previous periods. We show that once we do so, given any debt path, the government can adjust its tax policy so as to attain that debt path without affecting equilibrium allocations or prices.     

Rational expectations and the expectations model of the term structure: A test using weekly data

This paper tests the joint hypothesis of rational expectations model of the term structure for three- and six-month Treasury bills. Previous studies are extended in two main directions. First, the joint hypothesis is tested using weekly data for Treasury bills maturing in exactly 13 and 26 weeks beginning in 1970 and ending in 1979. In contrast, previous studies using comparable data have typically discarded 12/13 of the sample to a form a nonoverlapping data set. Second, a more complete set of possible determinants of time-varying premiums is tested.     

Rational expectations forecasts from nonrational models

This paper puts forward a method of policy simulation with an existing macroeconometric model under the maintained assumption that individuals form their expectations rationally. This new simulation technique grows out of Lucas' criticism that standard econometric policy evaluation permits policy rules to change but doesn't allow expectations mechanisms to respond as economic theory predicts they will. The technique is applied to versions of the St. Louis Federal Reserve model and the Federal Reserve-MIT-Penn (FMP) model to simulate the effects of different constant money growth policies. The results of these simulations indicate that the problem identified by Lucas may be of great quantitative importance in the econometric analysis of policy alternatives.     

主要发达国家地方债制度比较

地方债的发展与一国的城市化、工业化进程密不可分,由于社会发展和人口增加,社会对公共物品的需求激增,政府在提供公共物品过程中的资金需求与资金供给的不匹配也越来越明显,政府财政收支缺口不断扩大,产生经常性的融资需求。与其他融资工具相比,地方债为政府在贷款之外提供了长期、低成本的直接融资机会,因而在发达国家及一些发展中国家受到重视。研究发达国家地方债制度,对建立我国的地方债管理制度能提供很好的经验与启示。     

Rational expectations and the smoothing properties of inventories of finished goods

This paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor. The view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined. Both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force. In addition to providing some new evidence on the behavior of inventories of finished goods and employment, the paper illustrates a technology for maximum-likelihood estimation of structural parameters under the hypothesis of rational expectations.     

Rational expectations and the role of monetary policy: A generalization

This paper investigates the effects of introducing the following two alterations into a multimarket, partial information, rational expectations model; (1) individuals in any market may sample currently more prices than just the current price on their own market; (2) they choose the amount of their current information so as to minimize the sum of the costs of getting information and of being off their full information demand and supply curves. Under those circumstances any change in the variance of aggregate excess demand shocks (whether caused by real or monetary elements) affects the equilibrium level of information in the economy, in addition to its other direct effects previously recognized in the literature. Among the issues dealt with are the implications of these alterations for the following: (1) the Lucas hypothesis on the slope of the Phillips curve; (2) the optimal monetary variance and the optimal money feedback rule; (3) the effect of the level of information and of aggregate variance on the distribution of relative prices and related issues.     

US government spending,the national debt,and the role of accounting educators

This article discusses the facts associated with US government deficits and the national debt. The growing problem of government debt is unsustainable and timely action is needed to avert serious economic problems in the future. While the current picture and forecast in the future are sobering, positive change that will restore fiscal balance is possible. Government spending and national debt are significant societal problems and the solutions can be facilitated by objective, non-partisan expertise from financial professionals such as accounting educators. We have an opportunity and responsibility to educate our students and others about the significance of our nation’s financial problems. The article also encourages accounting educators to be more active in researching and discussing these issues in a broader public context. Having faculty focus on federal spending in their teaching and research is consistent with recommendations by the Pathways Commission that encourage accounting faculty to focus on issues that matter to the profession and to society. The article suggests alternative methods for sharing the issues with various student audiences.     

The market value of outstanding government debt, 1919–1975

Several new series on the market value of outstanding government debt are reported and their methods of construction described. The new series on Federal debt are compared with other existing estimates and are shown to be markedly superior to them.     

Rational expectations and the dynamic structure of macroeconomic models: A critical review

This paper surveys critically the literature on rational expectations and the dynamic structure of macroeconomic models. The theoretical framework common to this literature is set forth for the reader unfamiliar with it. As this is done, problems are brought out which are usually ignored in existing literature. The topics discussed are: (1) rational expectations and the natural rate hypothesis. (2) optimal linear forecasts and their applications, (3) the general linear rational expectations model and its use in econometric policy evaluation, and (4) information and convergence problems in rational expectations models.     

Rational expectations and the effectiveness of monetary policy with special reference to the Barro-Fischer model

Monetary policy is sometimes alleged to be ineffective when the rational-expectations hypothesis is imposed on macroeconomic models. Barro and Fischer (1976) once presented in this journal a simple macroeconomic model in order to explain such a claim. However, their conclusion depends on a specific rule employed for the future course of money supply. It is shown that their model embodies an important factor which generally renders monetary policies effective, rational expectations notwithstanding. It is suggested that this property also holds in more general macroeconomic frameworks.     

Rational expectations and monetary models of exchange rate determination: An empirical examination

One asset model of exchange rate determination that has received substantial attention in the literature is the monetary model. As with other asset models, expectations of future exchange rates play a key role. Usually these expectations are assumed to be formed rationally. However, to date there has been no attempt to empirically estimate a complete monetary model with rational expectations. In this paper, such a model is estimated and the restrictions implicity imposed by the rational expectation hypothesis tested. The results suggest that both the parameter constraints associated with the monetary model and those implied by the REH are consistent with recent exchange rate behavior.     

New considerations in the announcement effects of privately placed debt

We examine the stock price reaction to announcements of privately placed debt. The results suggest no effect for firms with a public debt rating and offsetting effects for firms without a public debt rating. If the private placement appears to reduce monitoring for a firm without a debt rating, it produces a significantly negative price response. However, if it appears to increase financial flexibility and bargaining power, it produces a positive reaction. Overall, the evidence suggests that private placements of debt are more similar to public bond issues than bank loans in terms of the price reaction at the announcement.     

Rational expectations,changing monetary policy rules,and real exchange rate dynamics

This paper reexamines the explanatory power of Taylor rule fundamentals for real exchange rate determination. We assume the agents know the time-varying parameters in central bank policy rules. The empirical results suggest that a monetary policy rule with regime switching is better able to explain the real Deutschemark/dollar exchange rate from 1976 to 1998 compared with a fixed-regime monetary policy rule. The findings show the importance of accounting for the expectation formation effect in changing policy rules as emphasized by the Lucas critique. Ignoring these effects can undermine the value of the rational expectations models.     

Disclosure of government financial information and the cost of local government’s debt financing——Empirical evidence from provincial investment bonds for urban construction

China’s slowing economic growth and rapid urbanization have made local government debt financing a significant issue.This study uses a sample of China’s provinc...