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Department of Economics Seminar Series |
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| Category: | College Of Arts And Sciences | |
| Date & Time: |
Wednesday, 12/05/2012 from 02:00 PM to 03:00 PM |
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| Location: | Board of Trustee Room - Admin Building | |
| Admission: | Free! | |
| Sponsored by: | Provost Office | |
| Contact: |
Devon Lynch dlynch@umassd.edu 508-999-9267 |
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| Description: | Abstract: What should the government’s fiscal policy be when banks hold significant amounts of public debt and the government can default on its debt obligations? This question is addressed using a dynamic general equilibrium model where banks face constraints on their leverage ratios and adjust lending to satisfy regulatory requirements. In response to adverse real shocks, the government subsidizes banks and accelerates bond repayments to sustain private sector lending. When government consumption exogenously increases, however, the government optimally taxes banks and partially defaults on its debt. Debt issuance is procyclical to ensure equilibrium in the deposit market. With an opening of the economy, the government uses less aggressive tax and default policies. | |
