Juan Pablo Nicolini

Federal Reserve Bank of Minneapolis and Universidad Di Tella

We assess the quantitative relevance of expectations-driven sovereign debt crises, focusing on the Southern European crisis of the early 2010’s and the Argentine default of 2001. The source of multiplicity is the one in Calvo (1988). Key for multiplicity is an output process featuring long periods of either high growth or stagnation that we estimat...

We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces some features of the financial crisis that unraveled in 2007 in the United States. We use the model to study the effects, following a credit crun...

A dataset comprising 38 countries and relatively long sample periods, which extends in some cases to over a century, is used to study the behavior of long-run demand for M1. For a large majority of the countries, the evidence supports the existence of a stable long-run relationship between the ratio of M1 to GDP and a short-term interest rate. The...

In this paper, we show that there is substantial comovement between prices of primary commodities such as oil, aluminum, maize, or copper and real exchange rates between developed economies such as Germany, Japan, and the United Kingdom against the US dollar. We therefore explicitly consider the production of commodities in a two-country model of t...

We revisit the question of how capital should be taxed. We allow for a rich set of tax instruments that consists of taxes widely used in practice, including consumption, dividend, capital, and labor income taxes. We restrict policies to those that respect pre-existing promises regarding the current value of wealth. We show that capital should not b...

We study a model with heterogeneous producers that face collateral and cash in advance constraints. A tightening of the collateral constraint results in a credit-crunch generated recession that reproduces several features of the financial crisis that unraveled in 2007. The model can suitable be used to study the effects on the main macroeconomic va...

We document the behavior of income per capita in Argentina subsequent to independence and the civil wars of the mid-19th century. We first decompose the data to isolate low frequency behavior and show that, with significant departures over some periods of time, income per capita grew, on average, at 1.2% per year. The decomposition shows that the l...

We document the behavior of income per capita in Argentina subsequent to independence and the civil wars of the mid-19th century. We first decompose the data to isolate low frequency behavior and show that, with significant departures over some periods of time, income per capita grew, on average, at 1. 2% per year . The decomposition shows that the...

When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to infl...

Price stability shares with a healthy knee a particular feature: both are precious, but you do not realize how much until you miss them. When you run, your knees perform amazing functions, without you even being aware of them. That is price stability. Under some circumstances, one of your knees may be under some stress and you may be forced to use...

In existing unemployment insurance programmes, it is standard to condition eligibility on the previous employment record of unemployed workers. The purpose of this article is to study conditions under which the efficient contract exhibits these properties. In order to do so, we characterize the optimal unemployment insurance contract in asymmetric...

We study the interplay between competition and trust as efficiency-enhancing mechanims in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a lower bound on efficiency. Stationary inflation must be po...

Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a...

This paper discusses two sources of ideas that influence monetary policy makers today. The first is a set of analytical results that impose the rational expectations equilibrium concept and do 'intelligent design' by solving Ramsey and mechanism design problems. The second is the adaptive learning process that first taught us how to anchor the pric...

In this article, we analyze the implications of price-setting restrictions for the conduct of cyclical fiscal and monetary policy. We consider standard monetary economies that differ in the price-setting restrictions imposed on the firms. We show that, independently of the degree or type of price stickiness, it is possible to implement the same eff...

A common legacy of banking crises is a large increase in government debt, as fiscal resources are used to shore up the banking system. Do crisis response strategies that commit more fiscal resources lower the economic costs of crises? Based on evidence from a sample of 40 banking crises we find that the answer is negative. In fact, policies that ar...

This paper studies the short run correlation of inflation and money growth. We study whether a model of learning does better or worse than a model of rational expectations, and we focus our study on countries of high inflation. We take the money process as an exogenous variable, estimated from the data through a switching regime process. We find th...

We analyze optimal ï¬scal,monetary and exchange rate policy in a simple small open econonomy model with price setting frictions.We perform our analysis in the tradition of optimal dynamic Ramsey problems.We characterize optimal allocations and the government policies that implement the optimal allocation.We analyze optimal ï¬scal,monetary and excha...

We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if “inside monies” can be produced at a sufficiently low cost, outside money is dr...

The relationship between devaluation and default risk is a central issue in the discussion of the costs and bene…ts of dollarizing emerging economies. Correct measures of these two unobserved variables are essential for assessing the welfare implications of dollarization. This paper studies the role of private sector balance sheets in measuring dev...

In this paper we examine the impact of membership in Preferential Trade Agreements (PTAs) on trade between PTA members. Rather than considering the impact of PTA membership on the volume of trade we consider the impact of membership on the structure of trade. For a large sample of countries over the period 1962-2000 we find that membership in a PTA...

In this paper the authors explore the ability of simple monetary models with bounded rationality to account for the joint distribution of money and prices. They impose restrictions on the size of the mistakes agents can make in equilibrium and argue that countries with high inflation are likely to satisfy these restrictions. Their computations show...

Theoretical and empirical analysis of de jure dollarization. With the persistent instability of international financial markets, emerging economies are exploring new ways to reduce exposure to capital flow volatility. Some analysts argue that financially open economies are best served by more flexible regimes, while others argue in favor of extreme...

This paper examines the determinants of fiscal performance of sub-national governments in Argentina. This will be done through analysis and examination of the overall regime of incentives, through an analysis of salient episodes of `bailout` and through cross-sectional empirical analysis. The bailout episodes to be analyzed will include mostly thos...

This paper shows that state contingent debt can be synthetically constructed using non-contingent debt of different maturities. A main policy implication of this principle is that the Ramsey allocation with complete markets can be sustained with non-contingent debt only by properly managing its maturity structure. The numerical experiments, however...

We study how competition from privately supplied currency substitutes a¤ects monetary policy. We focus on regimes where monetary policy must be sequentially optimal. We obtain that the workings of competition between currency and currency substitutes depend critically on government objectives. However, the impact inside money competition has on equ...

We study the interaction of competition and reputation as e¢- ciency enhancing mechanisms in environments where informational or lack of commitment constraints a¤ect the ability of …rms to compete for market shares. We …rst analyze a dynamic model of monopolistic competition with experience goods. If beliefs satisfy a minimal regularity condition,...

In this paper we show how risk free bonds of different maturities can be used to replace state contingent debt in a general equilibrium dynamic optimal taxation problem. In particular, we show that if the state of the economy can only take a finite number N of values each period, then the government can support the complete markets Ramsey allocatio...

In this paper we analyze the interaction of two disciplinary mechanisms: competition and reputation. We first study a dynamic model of monopolistic competition with experienced goods (i.e., quality is observed after goods are purchased). When market power is high enough, reputation results in the equilibrium with perfect information being sustainab...

In this paper the authors analyze the interaction of two disciplinary mechanisms: competition and reputation. They first study a dynamic model of monopolistic competition with experiencs goods (i.e., quality is observed after goods are purchased). When market power is high enough, reputation results in the equilibrium with perfect information being...

This paper uses a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the last decade. We study a standard monetary model, where the full rational expectations assumption is replaced by a formal definition of quasi-rational learning. The model under learning is able to match remarkably well some cruc...

We developed a simple monetary model to study the effects of tax evasion on the optimal inflation tax. The model is constructed so that inflation might be an indirect way of taxing the underground sector of the economy. We show that while there are theoretical reasons for positive optimal inflation rates, the effects are quantitatively small, even...

We introduce costs of unexpected inflation in a general equilibrium monetary model by changing the timing of the constraints faced by consumers. We show that in this environment monetary policy is still time inconsistent, but the nature of the inconsistency is very different from the standard result found in the literature. In particular, we find t...

The aim of this paper is to understand the high differential between the interest rate spreads in Argentina relative to developed countries. We document the evolution of the lending interest rates for the post convertibility plan period together with the different characteristics of loans, focusing the analysis on the wide heterogeneity of the inte...

We analyze the impact of electronic money competition on policy outcomes. We consider di�erent assumptions regarding the objectives of the central bank and its ability to commit to future policies. Electronic money competition can discipline a revenue maximizing government and result in lower equilibrium in�ation rates, even when there is imperfect...

This paper considers the design of an optimal unemployment insurance system. The problem is modeled as a repeated principal-agent problem involving a risk-averse agent--the unemployed worker--and a risk-neutral principal, which cannot montor the agent's search effort. The optimal long-term contract involves a replacement ratio that decreases throug...

The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group. We show how the union of these two value syst...

In this paper we show that if the government can levy taxes to back the currency, speculative hyperinflations are ruled out as equilibrium outcomes. This is so even though convertibility is never observed in equilibrium. The only observational difference between a pure fiat money economy and a convertible economy as the one described in this paper...