Research and Other
Quick Links:
Lectures and Non-Academic Work
"International Reserve Holdings: Interest Rates Matter!" [With Javier A. Reyes] Applied Economic Letters, 1-6, 2008.
Abstract: We argue that the literature on optimal international reserve holdings in an era of high capital mobility fails to find interest rates are strongly significant factor because of the endogeneity of interest rates and reserves under fixed exchange rate regimes. Using two stage least squares we control for this and regain statistical significance for interest rates.
"Inflation Targeting or Fear of Floating in Disguise : A Broader Perspective "[With Javier A. Reyes] Journal of Macroeconomics, 30(1), pp. 308 - 326, 2008.
Abstract. This paper modifies Calvo and Reinhart’s (2002) fear of floating analysis to distinguish between de facto inflation targeting (IT) and fear of floating (FF) behavior in a sample of 10 de jure inflation targeting countries. We present three main findings. 1) The standard approach misclassifies many countries and this misclassification is persistent across countries. 2) The modified analysis tends to better distinguish between IT and FF regimes. Since the modified analysis is not much more difficult, and reveals valuable information, it seems reasonable to recommend it when classifying countries’ regimes according to behavior. 3) Based solely on their use of international reserves, most countries are classified as FF. Nevertheless, when compared to the standard definition of fixers and floaters, IT countries are more similar to floaters than fixers, lending some support to the common reference to IT countries as having floating exchange rate regimes.
"Rethinking Hubs versus Point-to-Point Competition" Journal of Business and Economic Studies, 13(1), 73-87, 2007
Description. This is a short, but fun Industrial Organization paper written while in graduate school. The idea is simply that, by flying point-to-point flights around the periphery of a unit circle, Southwest has a natural time advantage in short-haul flights over hub-and-spoke-type airlines that must always fly through the circle's center (representing the hub). Southwest's short-haul time advantage allows it to capture approximately 60% of any market it enters which turns out to be approximately the share Southwest tends historically to capture.
“Inflation Targeting or Fear of Floating in Disguise: The Case of Mexico.” [With Javier A. Reyes]. International Journal of Finance and Economics Vol. 9, Issue 1, (2004): 49-69.
“The Intertwinement of Legal and Economic Systems in Transition.” Rechtstheorie 33 (2002): 299-317
"Capital Mobility and Sudden Stops: Consequences and Policy Options." Ph.D. Dissertation, Texas A&M University, 2003.
Posted: January 2012
International Real
Business Cycles and the Remittances Motivation Debate [With
Javier A.
Reyes]
MATLAB code
(requires dynare):
main Dynare code
matlab loop code (warning, takes a long time to run)
Abstract: The objective of real business cycle models is to generate a coherent understanding of how and why various aggregate variables co-move. To explain the cyclical pattern of remittances we use a small open economy international real business cycle model that includes a foreign production sector which employs migrants. Independent of migrants' motives to remit, pro- and counter-cyclical patterns can be generated by varying the parameters of the stochastic innovation. Within this framework we show the basic mechanics of remittance flow based on business cycles and labor flows, why it should generally yield negative remittance and domestic output correlations, and why in a broader model it generates negative correlations about 70% of the time. These predictions appear consistent with the empirical literature that frequently finds such negative correlations but also shows why the common interpretation of correlations as implying different motives to remit is inconsistent with the underlying economics.
Posted: January 2012 A New Keynesian Perspective on Announcing Inflation Target Changes [With Javier A. Reyes]
Abstract: In practice inflation targeting central banks announce future inflation targets and any anticipated changes in the target. They must choose how far in advance to announce a target change and whether to make the change in single or multiple steps. This paper considers these issues in a standard New Keynesian model and finds that the optimal announcement length and the number of steps taken during transition to a new target vary consistently with the degree of price rigidity in the economy and the response of the monetary authorities to the inflation gap in the authority's policy rule.
** Here's a continuous time version we did a few years ago (I still like this original model): Announcement Effects
Posted: February 2010
Remittances, Inflation
and Exchange Rate Regimes in Small Open Economies (currently under review)
[with Martha Cruz-Zuniga,
Claude Lopez, and
Javier A.
Reyes]
Abstract: Remittances are private monetary transfers. Yet the rapidly growing literature on the subject often ignores the role that exchange rate regimes play in determining the effect remittances have on a recipient economy. This paper uses a theoretical model and panel vector autoregression techniques to explore the role exchange rate regimes play in understanding the effect of remittances. The analysis considers yearly and quarterly data for seven Latin American countries. Our theoretical model predicts that remittances should temporarily increase inflation and generate an increase in the domestic money supply under a fixed regime but temporarily decrease inflation and generate no change in the money supply under a flexible regime. These differences are borne out in the data. This adds to our understanding of the true effect of remittances on economies and suggests that other results in the literature that do not control for regimes may be biased.
Can Inflation Perpetuate Trade Deficits (for SEA's 2005) [With Javier A. Reyes] This is a VERY ROUGH Draft
Abstract. Using a general equilibrium model with traded and nontraded goods we show that, relative to other monetary regimes, inflation targeting can indeed perpetuate a trade deficit. While the issue relevant to all inflation targeting regimes, our model is focused at addressing issues in emerging markets. By considering a shock to world interest rates we generate a trade deficit. We then compare the speed of adjustment back to a trade balance under two alternative regimes and three different policy tools. The primary focus is on the different paths of adjustment between a flexible exchange rate regime (i.e., a fixed money supply) and an inflation targeting regime. Under the inflation targeting umbrella we consider the case where policy makers use the nominal interest rate versus their use of international reserves to meet their targets. We find that the trade deficit returns to balance most rapidly under the flexible regime, secondly under the reserve-based and most slowly under an interest-rate-based inflation target.
Debt Maturity Choices When Capital Inflows Can Suddenly Stop This Draft: 1/20/2005
Abstract. Much attention has been given recently to understanding the causes and consequences of capital inflows to an economy suddenly stopping. An issue that continues to arise in that context is the role that the maturity of an economy’s debt plays in the crisis. Nevertheless, much of the literature still uses models with short term debt only or only include multiple maturities in a three-date environment. In this paper short and long term debt are introduced in an infinite horizon, representative agent model that is consistent with modern open economy macroeconomics in the vein of those presented in Obstfeld and Rogoff (1996). Phase diagrams are derived for the paths of consumption and debt in an economy suffering from sudden stops. Capital controls are modeled as an application to the policy-relevant debates.
Rough Working Papers:
“Information Differences, Debt Maturity and Intertemporal Choices When Capital Inflows Can Suddenly Stop.” Current (Very Rough) Draft Abstract
This paper builds on a chapter from my Ph.D. Dissertation at Texas A&M University. I develop a discrete-time representative-agent model in the intertemporal approach to balance payments account vein that allows individuals to choose between short- and long-term debt instruments under various information assumptions and expectations concerning the occurrence of a sudden stop. The general result is that banning short-term capital would generally not be optimal. The model also generates an endogenous term-structure of interest rates.
“Maturity Bunching: A New Perspective on the Timing and Duration of Sudden Stops.” [With Javier A. Reyes] (Abstract)
This paper builds on a chapter from my Ph.D. Dissertation at Texas A&M University. I use a simulated version of my model that allows individuals to choose between short-term (1-date), medium-term (2-date) and long-term (3-date) maturities to finance international borrowing when there is uncertainty over the duration of a sudden stop. The model's predictions are then compared against debt maturity data from countries that recently experienced sudden stops.
My SSRN Site: http://ssrn.com/author=359671
Lectures and Non-Academic Work:
Keynote Address, with Emese Gáll, Hungarian Cultural Society of Connecticut, Csárda Fundraiser for Scholarships, November 7, 2009
"1956 Commemoration: Brief Remarks" English language address to the Hungarian community in Connecticut on the occasion of the 1956 commemoration in 2008. Magyar Haz, Wallingford, CT.
"Protecting Consumers By Raising Gas Prices?" [With Mark Gius and Matthew Rafferty], CATO Regulation Magazine, Vol.30, No. 2, Summer 2007
"On The Costs and Benefits of Inflation Targeting to Join the EMU," XXIV Economic Forum, Krynica, Poland, September 6 - September 9, 2006. (Lecture notes: here)
"Monetary Regimes for Joining the EMU: First Thoughts for the Visegrad Four," Prepared for the Conference on Trends in Global Business, "Doing Business in the European Union: Yesterday, Today and Tomorrow", New Haven, CT, April 20 - 26, 2006.
"Out of the Frying Pan and Into the Fire: Hungary's Transition from Goulash Communism to EU Membership", For the panel "Out of Russia's Shadow", Institute of Current World Affairs, June 2004.
"Making Bacon Out of A Dog: Communist Legacies in Hungary and Romania", For the panel "Communist Legacy", Institute of Current World Affairs, June 2004.