Found 13 article(s) for author 'Emmanuel Farhi'

Trump’s Tax Plan and the Dollar

Trump’s Tax Plan and the Dollar. Emmanuel Farhi, Gita Gopinath, January 3, 2017, Opinion, “Now that Donald Trump has been elected President of the United States and Republicans control both houses of Congress, corporate tax reform is coming to America. The package currently being discussed includes two important features: a cut in the tax rate, from 35% currently to 20% or even 15%; and a “border-adjustment” tax, which is typical of a value-added-tax (VAT) regime, but unusual for corporate taxes.Link

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A Theory of Macroprudential Policies in the Presence of Nominal Rigidities

A Theory of Macroprudential Policies in the Presence of Nominal Rigidities. Emmanuel Farhi, May 2015, Paper. “We propose a theory of monetary policy and macroprudential interventions in financial markets. We focus on economies with nominal rigidities in goods and labor markets and subject to constraints on monetary policy, such as the zero lower bound or fixed exchange rates. We identify an aggregate demand externality that can be corrected by macroprudential interventions in financial markets. Ex post, the distribution of wealth across agents affects aggregate demand and output...” Link

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Liquidity and growth: the role of counter-cyclical interest rates

Liquidity and growth: the role of counter-cyclical interest rates. Philippe Aghion, Emmanuel Farhi, February 2015, Paper. “In this paper, we use cross-industry, cross-country panel data to test whether industry growth is positively affected by the interaction between the reaction of real short-term interest rates to the business cycle and industry-level measures of financial constraints. Financial constraints are measured, either by the extent to which an industry is prone to being “credit-constrained”, or by the extent to which it is prone to being “liquidity-constrained”. Our main findings are that: (i) the interaction between credit or liquidity...” Link

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Labor Mobility Within Currency Unions

Labor Mobility Within Currency Unions. Emmanuel Farhi, April 2014, Paper. “We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small…” Link verified August 21, 2014

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The Safety Trap

The Safety Trap. Emmanuel Farhi, May 31, 2014, Paper. “Recently, the global economy has experienced recurrent episodes of safe asset shortages. In this paper we present a model that shows how such shortages can generate macroeconomic phenomena similar to those found in liquidity trap scenarios. Despite the similarities, there are also subtle but important differences which carry significant impacts on the relative effectiveness of economic policy and potential market solutions to the underlying problem. For example, while forward guidance policies are typically more effective than quantitative easing…” Link

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Cyclical Macroeconomic Policy, Financial Regulation, and Economic Growth

Cyclical Macroeconomic Policy, Financial Regulation, and Economic Growth. Phillippe Aghion, Emmanuel Farhi, December 2013, Paper. “This paper investigates the effect of cyclical macroeconomic policy and financial regulation on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, counter-cyclical fiscal and monetary policies foster disproportionately growth in more credit/liquidity constrained industries. Second, while tighter financial regulation –in the form of higher bank capital ratios- may contribute to reducing the benefit of a counter-cyclical monetary policy…” Link

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Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows

Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows. Emmanuel Farhi, October 2013, Paper. “We consider a standard New Keynesian model of a small open economy with nominal rigidities and study optimal capital controls. Consistent with the Mundellian view, we find that the exchange rate regime is key. However, in contrast with the Mundellian view, we find that capital controls are desirable even when the exchange rate is flexible. Optimal capital controls lean against the wind and help smooth out capital flows…”  Link verified March 28, 2014

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Fiscal Devaluations

Fiscal Devaluations. Emmanuel Farhi, Gita Gopinath, August 29, 2013, Paper. “We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a dynamic New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions—producer or local currency pricing, along with nominal wage stickiness; under arbitrary degrees of asset market completeness and for general stochastic sequences of devaluations…”  Link verified March 28, 2014

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A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy

A Model of the Safe Asset Mechanism (SAM): Safety Traps and Economic Policy. Emmanuel Farhi, August 22, 2013, Paper. “The global economy has a chronic shortage of safe assets which lies behind many recent macroeconomic imbalances. This paper provides a simple model of the Safe Asset Mechanism (SAM), its recessionary safety traps, and its policy antidotes. Safety traps share many common features with conventional liquidity traps, but also exhibit important differences, in particular with respect to their reaction to policy packages. In general, policy-puts (such as…” Link verified August 21, 2014

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Fiscal Unions

Fiscal Unions. Emmanuel Farhi, June 2013, Paper. “We study cross-country insurance for members of a currency union using an open economy model with nominal rigidities and provide two key results. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation…”  Link verified March 28, 2014

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