Macro-prudential taxation in good times

Diagnostic Expectations and Macroeconomic Volatility

“…In order to capture the idea that the agent is forming beliefs about a very long-run object, we calibrate the persistence of the permanent component to a high value, ρ Z = 0.98. This is also broadly consistent with estimates obtained in Blanchard et al (2013), Cao andL'Huillier (2018), andFlemming, L'Huillier, andPiguillem (2019), which use a similar model and estimate it by maximum likelihood. 22 We normalize the standard deviation of TFP to 1, implying a standard deviation permanent shocks of 0.02.…”

A Fisherian approach to financial crises: Lessons from the Sudden Stops literature

“…11 From a contractual point of view, the reason why non-tradable goods enter as collateral is that foreigners can seize them from a defaulting borrower and sell them in the domestic market in exchange for tradable goods. The literature has extensively used this formulation of the credit constraint in models of reserve accumulation (Durdu et al, 2009;Arce et al, 2019), macroprudential policy (Bianchi, 2011), real-exchange-rate stabilization policies (Benigno et al, 2013), ex-post intervention with industrial policy (Hernandez and Mendoza, 2017), self-fulfilling crises (Schmitt-Grohé and Uribe, 2018), noisy news and regime-switching shocks (Bianchi et al, 2016), trend shocks (Flemming et al, 2019;Seoane and Yurdagul, 2019), imperfect enforcement in capital-flow management policies (Bengui and Bianchi, 2018), models with banks intermediating capital inflows in T units to fund domestic loans in units of the domestic CPI (Mendoza and Rojas, 2019), and models of exchange-rate policy with nominal rigidities and credit frictions (Ottonello, 2015;Coulibaly, 2018;Farhi and Werning, 2016).…”

A Macroprudential Theory of Foreign Reserve Accumulation

“…e result that taxes have a negative correlation with output is emphasized in Schmi -Grohé and Uribe (2017) andBianchi and Mendoza (2018) Flemming, L'Huillier and Piguillem (2019). show that persistent shocks to income growth can alter the sign of the cyclicality.18 By "constrained-e cient, " we mean the solution to the problem described in (9)-(11), while by "foreign reserve intervention, " we mean the implementation of the constrained-e cient allocation presented in Section 3.5.19 In the state space, this occurs technically for all values of debt except those at which the borrowing constraint is binding under laissez-faire but not under constrained-e ciency.…”