New Research

Cai and Heathcote: College Tuition and Income Inequality

College Tuition and Income Inequality Zhifeng Cai Jonathan Heathcote, Monetary Advisor July 2018 | Federal Reserve Bank of Minneapolis Staff Report 569 This paper evaluates the role of rising income inequality in explaining observed growth in...

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Benjamin and Wright: Deconstructing Delays in Sovereign Debt Restructuring

Negotiations to restructure sovereign debt are time consuming, taking almost a decade on average to resolve. In this paper, we analyze a class of widely used complete information models of delays in sovereign debt restructuring and show that, despite superficial similarities, there are major differences across models in the driving force for equilibrium delay, the circumstances in which delay occurs, and the efficiency of the debt restructuring process.

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Chari, Nicolini, Teles: Optimal Capital Taxation Revisited

We revisit the question of how capital should be taxed, arguing that if governments are allowed to use the kinds of tax instruments widely used in practice, for preferences that are standard in the macroeconomic literature, the optimal approach is to never distort capital accumulation.

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Amador and Phelan: Reputation and Sovereign Default

This paper presents a continuous-time model of sovereign debt. In it, a relatively impatient sovereign government’s hidden type switches back and forth between a commitment type, which cannot default, and an optimizing type, which can default on the country’s debt at any time, and assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price.

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Ohanian, Restrepo-Echavarria, Wright: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America

After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns.

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