Foreign Debt and Economic Development

This paper characterizes the optimal path of foreign public debt that can support politically unanimous (Pareto welfare improving) economic growth under uncertainty. The feasibility of the plan depends on whether the maintenance of political consensus in the debtor country requires additional loans that are high relative to the country's outstanding debt. If a program is feasible, then the creditors will have an incentive to preserve political support for the plan, in case of adverse developments, by offering debt relief. Unlike the certainty case, where only total debt matters, uncertainty makes also the timing of debt repayments critical for economic development.     

THE COMPLEX RESPONSE OF MONETARY POLICY TO THE EXCHANGE RATE

We estimate a flexible non‐linear monetary policy rule for the United Kingdom to examine the response of policymakers to the real exchange rate. We have three main findings. First, policymakers respond to real exchange rate misalignment rather than to the real exchange rate itself. Second, policymakers ignore small deviations of the exchange rate; they only respond to real exchange under‐valuations of more than 4% and over‐valuations of more than 5%. Third, the response of policymakers to inflation is smaller when the exchange rate is over‐valued and larger when it is under‐valued. None of these responses is allowed for in the widely used linear Taylor‐type rules, suggesting that monetary policy is better analysed using a more sophisticated model, such as the one suggested in this paper.     

Determinants of spreads on new high yield bonds of shipping companies

This paper investigates determinants of pricing of new high yield bond offerings of shipping companies. New high yield bond offerings issued by shipping companies in the US market, during the period 1993–1998, are used in the investigation. The empirical results suggest that credit rating is the major determinant of the price spread of the bond offerings. Financial leverage and shipping market conditions also account for a significant part of the price variability.     

Trend-reverting fluctuations in the life-cycle model

Aggregate time series provide evidence of short-term dynamic adjustment that appears to be governed by complex or negative real eigenvalues. This finding is at odds with the predictions of reasonably parameterized, convex one-sector growth models with complete markets. We study life-cycle economies in which aggregate saving depends non-trivially on the distribution of wealth among cohorts. If consumption goods are weak gross substitutes near the steady-state price vector, we prove that the unique equilibrium of a life-cycle exchange economy converges to the unique non-monetary steady state via damped oscillations. We also discuss examples and extensions.