E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

• Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery

  Staff Working Paper 2011-30 Jonathan Chiu, Thorsten Koeppl

  We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): E, E6, G, G1

• Sovereign Default Risk Premia, Fiscal Limits and Fiscal Policy

  Staff Working Paper 2011-10 Huixin Bi

  We develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The stochastic fiscal limits, which measure the ability and willingness of the government to service its debt, arise endogenously from a dynamic Laffer curve.

  Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, International topics JEL Code(s): E, E6, E62, H, H3, H30, H6, H60