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Debt Maturity Choice and Macroprudential Policy - Reserve Accumulation and Financial Openness

17 February 2016 at 12:00 PM - 1:30 PM

Room 305B, Campus on Viale Romania, 32

Speaker: Marzio Bassanin, Raluca Di Benedetto , LUISS
  • Speaker: Marzio Bassanin 
  • Title: Debt Maturity Choice and Macroprudential Policy 
  • Abstract: This paper studies private debt maturity choices in a model in which an endogenous collateral constraint generates pecuniary externality and overborrowing. Long-term debt provide a tool to move resources among time, overcoming the constraint. Therefore, a proper maturity structure can alleviate the amplification mechanism triggered by a negative shock when the constraint binds, lowering the systemic risk. The main result of the paper is that decentralized maturity choices are not constrained efficiency and too much tilted through short-term contracts. Due to pecuniary externality, borrowers fail to internalize the role of long-term debt in terms of reducing systemic risk. Macro-prudential policy, raising the relative cost of short-term debt, can restore the right incentives for an efficient maturity structure. The regulated equilibrium is characterized by a less volatile allocations during financial crisis. 
  • Speaker: Raluca Di Benedetto 
  • Title: Reserve Accumulation and Financial Openness 
  • Abstract: In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls have become part of the standard policy toolkit. Breaking the link between foreign and domestic interest rates, capital controls provide the government with an additional policy instrument which can be used to address asset market imperfections. Using a small open economy version of the Calvo sticky price model with incomplete international financial markets modifed for the accumulation of international reserves, the aim of this paper is to investigate the different implications arising from considering the joint management of international reserves and monetary policy with capital controls.