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Tuesday, July 21, 2020 | History

1 edition of Government debt, life-cycle income and liquidity constraints found in the catalog.

Government debt, life-cycle income and liquidity constraints

Government debt, life-cycle income and liquidity constraints

beyond approximate ricardian equivalence.

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Published by International Monetary Fund in Washington, D.C .
Written in English


Edition Notes

Includes bibliographical references.

SeriesIMF working paper -- WP/96/140
ContributionsInternational Monetary Fund.
The Physical Object
Pagination28 p. ;
Number of Pages28
ID Numbers
Open LibraryOL16796221M

We characterize optimal provision of debt in 3 steps: 1. Setup a micro-founded Ramsey policy problem (as in Barro, , Lucas and Stokey, , and Aiyagari et al., ) that allows public debt to a ect the bite of a nancial friction (as in Woodford, and Holmstr om-Tirole, ). 2. government debt is su¢ ciently high, there is no liquidity premium on the debt and the price level is pinned down in the usual way by the –scal theory of the price level. However if the real value of government debt is su¢ ciently low, then collateral con-straints bind and the price of government debt re⁄ects a liquidity premium on the debt.

  India is not close to a situation where the central bank has to opt for debt monetisation amid expanding government spending and declining revenue collection due to the COVID crisis, said. “Managing Liquidity of Government Debt” June , 2 1. Treasury Market and Funding Liquidity Measures from the trading book as the difference between the best bid and ask. Bid-ask spreads increased In , the funding constraints of .

At the end of , state and local governments had $ trillion in debt outstanding (figure 1). About 98 percent of this debt was long term or with a maturity of 13 months or longer, while the remaining 2 percent was short term. As in most years, roughly 40 percent of municipal debt was issued by states and 60 percent by local governments.   In a study of the effects of the financial crisis on European Union nations, a strong correlation was found between government debt burdens and .


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Government debt, life-cycle income and liquidity constraints Download PDF EPUB FB2

Evans () has demonstrated that Blanchard's () finite-horizon model obeys approximate Ricardian equivalence. We show that this result is determined largely by an unrealistic assumption that labor income grows monotonically over a consumer's entire lifetime.

Introducing more realistic lifetime earnings profiles, we find that the effects of government debt on the real interest rate and. Government Debt, Life-Cycle Income and Liquidity Constraints: Beyond Approximate Ricardian Equivalence IMF Working Paper No. 96/ 30 Pages Posted: 15 Feb Cited by: Get this from a library.

Government Debt, Life-Cycle Income and Liquidity Constrains: Beyond Approximate Ricardian Equivalence. [Steven A Symansky; Hamid Faruqee; Douglas Laxton; International Monetary Fund.] -- Evans () has demonstrated that Blanchard's () finite-horizon model obeys approximate Ricardian equivalence.

We show that this result is determined largely by an unrealistic. Hamid Faruqee & Douglas Laxton & Steven Symansky, "Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence," IMF Staff Papers, Palgrave Macmillan, vol.

44(3), pagesSeptember. Steven A. Symansky & Douglas Laxton & Hamid Faruqee, "Government Debt, Life-Cycle Income and Liquidity Constrains; Beyond Approximate Ricardian Equivalence," IMF Working Papers 96/, International Monetary Fund.

In particular, leaving aside the Government debt of distortionary capital taxation, the extended model with liquidity constraints predicts that real interest rates would decline by about basis points if government debt were eliminated completely in all OECD countries.

Series: Working Paper No. 96/ Subject: Debt. Notes. To address the liquidity constraints of non-banking financial companies (NBFCs) and housing finance companies (HFCs), the government proposed to set up a partial credit guarantee scheme for the. Government Debt, Life-Cycle Income and Liquidity Constrains: Beyond Approximate Ricardian Equivalence, Working Paper No.

96/, Decem What Determines the Current Account. A Cross-Sectional and Panel Approach, Working Paper No. 96/58, J   Former RBI Governor D Subbarao on Friday said India is not close to the situation where the central bank has to go for debt monetisation amid rising government spending and falling revenue.

Saving, Liquidity Constraints, and the Payroll Tax," Working Paper (National Bureau of Economic Research, October ).

Glenn Hubbard and Kenneth L. Judd 3. Liquidity Index: As noted above, there is no definitive measure of liquidity. Constructing a composite index that incorporates several traditional measures of liquidity may provide a more comprehensive picture.

The index shown below includes several characteristics of the order book, such as bid-ask spread, top-of-book prices, and market depth, to quantify the ease with which investors can. the life cycle permanent income hypothesis.

One important implication of the permanent income can allow the Government to implement policies that focuses on the variables that are more play in consumption decisions. Section 3 reviews the empirical literature that used aggregate data to explore whether liquidity constraints matters for.

Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence. the extended model with liquidity constraints predicts that real interest rates would decline by about basis points if government debt were eliminated completely in all countries of the Organization for Economic Cooperation and.

According to life-cycle theories of consumption, accumulated wealth is more likely to be positive the older the household is. This suggests that average age should also have a negative relationship to A, as a young population would have a greater likelihood of having no assets and thus facing binding liquidity constraints.

(10) 3. The Expected Income and Liquidity Effects of Deficit Financing: The General Case previous section we assumed that the government debt consisted solely of short-term securities, and thus the value of the existing stock of government debt measured in nominal terms, B, was unaffected by changes in interest rates.

We study life-cycle asset allocation in the presence of liquidity constraints and undiversifiable labor income risk. The model includes three different assets (cash, long-term government bonds and. Government debt is often quoted as debt to GDP, and sustainable debt models usually presume that the government will run a primary surplus (the excess of government income over spending before.

Liquidity constraints have also been advanced as a primary reason for empirical rejections of the Permanent Income/Life Cycle Hypothesis, as discussed in Zeldes []. Testing for the existence of debt constraints with micro data has generated mixed results.(1) Hall and Mishkin [], Mariger [], Zeldes [], Hayashi [a], and Duca.

Head of Fixed Income Sales and Underwriting Tel: Email: Jon Allen Head of Fixed Income Trading and Analytics Tel: Email: John Beckelman Head of Fixed Income Financial Services Group Tel: Email.

The Ricardian equivalence proposition (also known as the Ricardo–de Viti–Barro equivalence theorem) is an economic hypothesis holding that consumers are forward looking and so internalize the government's budget constraint when making their consumption decisions.

This leads to the result that, for a given pattern of government spending, the method of financing that spending does not affect. The Indian debt market is a market meant for trading (i.e.

buying or selling) fixed income instruments. Fixed income instruments could be securities issued by Central and State Governments, Municipal Corporations, Govt.

Bodies or by private entities like financial institutions, banks, corporates, etc. Simply put, a bond/debt can be defined as a loan in which an investor is the lender.This liquidity shock leads to a drop in economic activity and inflation, and a "flight-to-liquidity" towards the government bonds with lower haircuts amplifying the raise in peripheral bonds yields An unconventional policy which consists of purchasing illiquid bonds, similar to the expanded asset purchase.

New Delhi: Former RBI Governor D Subbarao on Friday said India is not close to the situation where the central bank has to go for debt monetisation amid rising government spending and falling revenue collection due to the COVID crisis.

The case for direct financing is made on the argument that government borrowing this year has ballooned way beyond normal, Subbaro said.