The Optimum Quantity of Capital and Debt

In this paper we solve the dynamic optimal Ramsey taxation problem in a model with incomplete markets, where the government commits itself ex-ante to a time path of labor taxes, capital taxes and debt to maximize the discounted sum of ...

The Optimum Quantity of Capital and Debt

In this paper we solve the dynamic optimal Ramsey taxation problem in a model with incomplete markets, where the government commits itself ex-ante to a time path of labor taxes, capital taxes and debt to maximize the discounted sum of agents' utility starting from today. Whereas the literature has bee limited mainly to studying policies that maximize steady-state welfare only, we instead characterize the optimal policy along the full transition path. We show theoretically that in the long run the capital stock satisfies the modified golden rule. More importantly, we prove that in contrast to complete markets economies, in incomplete markets economies the long run steady state resulting from an infinite sequence of optimal policy choices is independent of initial conditions. This result is not only of theoretical interest but moreover, enables us to compute the long-run optimum independently from the transition path such that a quantitative analysis becomes tractable Quantitatively we find, robustly across various calibrations, that in the long run the government debt-to-GDP ratio is high, capital is taxed at a low rate and labor income at a high rate when compared to current U.S. values. Along the optimal transition to the steady state, labor taxes initially are lowered, financed through issuing more debt and taxing capital income heavily, before they are eventually increased to their steady-state level.

The Political Economy of Public Debt

In this model “the optimum quantity of debt will be high if debt is effective in smoothing out consumption over the lifetime of an individual” but “low if debt crowds out capital and therefore lowers consumption” or “if the incentive ...

The Political Economy of Public Debt

How have the most influential political economists of the past three centuries theorized about sovereign borrowing and shaped its now widespread use? That important question receives a comprehensive answer in this original work, featuring careful textual analysis and illuminating exhibits of public debt empirics since 1700. Beyond its value as a definitive, authoritative history of thought on public debt, this book rehabilitates and reintroduces a realist perspective into a contemporary debate now heavily dominated by pessimists and optimists alike.

The Optimum Quantity Of Money

For productive enterprises, the cost of producing a unit of capital capable of yielding one real dollar a year in ... Note that satisfaction of (31) assures that the cost of capital to a firm is independent of the debt-equity ratio.

The Optimum Quantity Of Money

This classic set of essays by Nobel Laureate and leading monetary theorist Milton Friedman presents a coherent view of the role of money, focusing on specific topics related to the empirical analysis of monetary phenomena and policy. The early chapters cover factors determining the real quantity of money held in a community and the welfare implications of policies that affect the quantity held. The following chapters formally restate why quantity analysis has become central to the science of economics. Friedman's presidential address to the American Economic Association, included here, provides a general summary of his views on the role of monetary policy, with an emphasis on its limitations and its possibilities. This theoretical framework is used in examining a number of empirical problems: the demand for money, the explanation of price changes in wartime periods, and the role of money in business cycles. These essays summarize some of the most important results of Friedman's extensive research over the course of his lifetime. The chapters on policy that follow survey the positions of earlier economists and deal with the importance of lags and the implications of destabilizing speculation in foreign markets. Taken as a whole, The Optimum Quantity of Money provides a comprehensive view of the body of monetary theory developed in leading centers of monetary analysis. This work is essential reading for economists and graduate students in the field. The volume will be no less important for practicing business and banking personnel as well. The new statement by Michael Bordo, a student of Friedman's and an expert in the field, provides a sense of where the field now stands in the economy and academy. Milton Friedman is a senior fellow at the Hoover Institution of Stanford University. Before that, he was Distinguished Service Professor of Economics at the University of Chicago. He has also taught at Columbia University, the University of Wisconsin, the University of Minnesota, and Cambridge University. Among his many books are Essays in Positive Economics, A Program for Monetary Stability, Capitalism and Freedom, and A Monetary History of the United States. Michael D. Bordo is professor of economics at Rutgers, The State University of New Jersey, and author, with Lars Jonung, of, among other works, Demand for Money.

The Optimum Quantity of Money

For productive enterprises, the cost of producing a unit of capital capable of yielding one real dollar a year in ... Note thatsatisfaction of (31)assures that the cost ofcapital toa firm isindependent o f the debt-equity ratio.

The Optimum Quantity of Money

This classic set of essays by Nobel Laureate and leading monetary theorist Milton Friedman presents a coherent view of the role of money, focusing on specific topics related to the empirical analysis of monetary phenomena and policy. The early chapters cover factors determining the real quantity of money held in a community and the welfare implications of policies that affect the quantity held. The following chapters formally restate why quantity analysis has become central to the science of economics. Friedman's presidential address to the American Economic Association, included here, provides a general summary of his views on the role of monetary policy, with an emphasis on its limitations and its possibilities. This theoretical framework is used in examining a number of empirical problems: the demand for money, the explanation of price changes in wartime periods, and the role of money in business cycles. These essays summarize some of the most important results of Friedman's extensive research over the course of his lifetime. The chapters on policy that follow survey the positions of earlier economists and deal with the importance of lags and the implications of destabilizing speculation in foreign markets. Taken as a whole, The Optimum Quantity of Money provides a comprehensive view of the body of monetary theory developed in leading centers of monetary analysis. This work is essential reading for economists and graduate students in the field. The volume will be no less important for practicing business and banking personnel as well. The new statement by Michael Bordo, a student of Friedman's and an expert in the field, provides a sense of where the field now stands in the economy and academy.

Studies in Macroeconomic Theory

Thus the redistributional optimum is “maximin.” The other feature is a restriction on the dynamics of capital and public debt. The basic notion is also found in a related study of interest taxation by Ordover, in which society is ...

Studies in Macroeconomic Theory

Studies in Macroeconomic Theory, Volume 2: Redistribution and Growth is a compendium of scholarly papers on the behavior and public control of distribution and growth in the market economy. The papers in this volume focus on the subject of public finance under the broad theory of economic policy. The papers are grouped into five groups or sections. Part I covers the steady-state choices. The second part takes up the efficient use of a given volume of saving in the choice among national investments. Part III explores the alternative approaches to optimal national saving. Part IV discusses the maximin-optimal graduated taxation of wage income. The final section expounds on Rawls's vision of the just economy. Economists will find the text invaluable and insightful.

Introduction to Computational Economics Using Fortran

9.4.6 THE OPTIMUM QUANTITY OF DEBT The heterogeneous agent model is a workhorse model for the analysis of government policy. ... This means that in the long run, any level of debt leads to the same capital-to-output ratio and the same ...

Introduction to Computational Economics Using Fortran

Introduction to Computational Economics Using Fortran is the essential guide to conducting economic research on a computer. Aimed at students of all levels of education as well as advanced economic researchers, it facilitates the first steps into writing programs using Fortran. Introduction to Computational Economics Using Fortran assumes no prior experience as it introduces the reader to this programming language. It shows the reader how to apply the most important numerical methods conducted by computational economists using the toolbox that accompanies this text. It offers various examples from economics and finance organized in self-contained chapters that speak to a diverse range of levels and academic backgrounds. Each topic is supported by an explanation of the theoretical background, a demonstration of how to implement the problem on the computer, and a discussion of simulation results. Readers can work through various exercises that promote practical experience and deepen their economic and technical insights. This textbook is accompanied by a website from which readers can download all program codes as well as a numerical toolbox, and receive technical information on how to install Fortran on their computer.

Optimal Fiscal and Monetary Policy with Nominal and Indexed Debt

"Why Do We Have Nominal Government Debt? ... "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives." Econometrica 54: 607-622. ... In The Optimum Quantity of Money and Other Essays, edited by Milton Friedman.

Optimal Fiscal and Monetary Policy with Nominal and Indexed Debt

This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run. Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption. The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt.

The New Art of Central Banking

Public Debt 5.1 INTRODUCTION Sections 5.1 and 5.2 pivot on the criterion for the optimum quantity of public debt, ... its marginal convenience yield ought to be nil, so that its yield in equilibrium is that of 'physical' capital.

The New Art of Central Banking

Central banking is being turned upside down by innovations such as securitization, complex options dealings and Euro-asset transactions that are denationalizing money and making it impossible for central banks to regulate costs of capital. Nor can central banks modulate business cycles in open economies; study of banking policy and business fluctuations suggests that the 'real' importance of bank-credit changes has long been exaggerated. The new art of central banking may culminate in masterly inactivity.

Monetary Correction

Summary sheet inserted.

Monetary Correction

Summary sheet inserted.

The Capital Needs of Central Banks

... for giving the central bank some capital, and for denying that the optimal quantity of capital is irrelevant. ... below the marginal cost of the country's external debt, and other benchmarks of similar importance: capital would then ...

The Capital Needs of Central Banks

Central banks have evolved over many years, and sometimes centuries, as policy-making, not profit-making, institutions, and yet they are structured legally and financially like ‘for-profit’ companies of the twenty-first century. The question is what is an appropriate level of equity, or capital, for a central bank to have so that it can function for policy effectiveness over profit-maximisation, without hindrance to the achievement and maintenance of policy goals? This collection takes the reader through historical, theoretical and factual discussions on why central banks exist and the role – actual and intended – they have in assisting their home nation in achieving monetary and financial stability. The contributions analyse the different ways central banks are funded and how funding arrangements may impact on their independence. The objective is to explore these themes first from the academic and practitioner’s views – those of the economist, accountant and lawyer’s – and then to introduce practical experiences from a range of different central banks, in terms of their economic and socio-political environments. It will be the first time that the theorist and practitioner, the accountant, the economist and the lawyer come together in one volume. The reader will be able to access the full breadth of views on this important subject. The main observations are that there is no single, quantifiable formula that central banks can use to calculate capital levels. Factors to consider are the historical context of central banks and whether capital was ever appropriate to needs at their foundation; the cultural, social and political contexts; and, in terms of the presentation of financial statements, profit and loss sharing arrangements and what accounting conventions are being used. If these are considered alongside the, often idiosyncratic, mandates individual central banks have, a qualitative understanding of what is an appropriate level of capital is achieved. This collection will be of interest to postgraduates and researchers focusing on the role of central banks in monetary economics; as well as a professional audience of central bankers, the BIS, the IMF, World Bank, EBRD and government departments.

Optimum Size of Government Intervention

The estimated optimum shares for two types of government size (the share of total expenditures to GDP and the share ... the optimum quantity of debt rather than actual US level observed (based on post–Second World War data) are small, ...

Optimum Size of Government Intervention

This book critically examines the optimum range and duration of government interventions in the economic activities of a modern state based on theoretical and empirical frameworks, and assesses their role and extent in various economies. With a special focus on emerging economies across the globe, it discusses themes such as income growth; social sector development; good governance and economic progress; threshold limits; optimum budget policy and economic growth; sustainable distributional managements in public projects; food for work programs; agricultural infrastructure development; technological progress and economic growth; and distributional equities. The policy suggestions provided here offer helpful blueprints for developmental projects. Rich in data and figures, the book addresses sector-specific case studies like healthcare; irrigation and agriculture; infrastructure; taxation and economic growth; and public sector enterprises. It will be an excellent read for scholars and researchers of economics, Indian economics, macroeconomics, political economy, public policy, political science and management, development studies, development economy and governance. It will also be useful to policymakers, administrative officials, and government and corporate bodies.

Agricultural Land Tenure Research Scope and Nature

In determining the optimum quantity of capital that he can use , the mortgaged owner is influenced by one consideration that does not affect the debt - free owner -- the necessity of maintaining some degree of liquidity in order to meet ...

Agricultural Land Tenure Research  Scope and Nature


Is the Debt War Over

Optimal Capital Income Taxation with Incomplete Markets and Borrowing Constraints . " Journal of Political Economy 103 : 1158-75 . Aiyagari , S. , and E. McGrattan . 1998. “ The Optimum Quantity of Debt . ” Journal of Monetary Economics ...

Is the Debt War Over


Debt Risk and Liquidity in Futures Markets

16 The derived optimal debt in equation (8)is a benchmarkmeasureof performance. where b is the mean return to investment (in equation 6), r is mean real interest rate (in equation 7), quantity (1 –γ) is a measure of risk aversion and σ ...

Debt  Risk and Liquidity in Futures Markets

The issues of developing country debt crises, increased volatility and risk, and the determination of market liquidity are high on the agendas of policy makers, market participants and researchers in the area of financial markets. These issues are also of major importance to regulators and exchange officials. This book contains a collection of eight papers which provide new insights into all three issues, with special emphasis on futures markets, which have received relatively little attention in the analysis of these problems. Issues explored and findings reported in this book, have implications for policy makers in framing recommendations to government, for government officials in shaping the regulatory structure of futures exchanges, for traders on these exchanges, and also for researchers planning future investigations. The book is relevant for post-graduate and advanced under-graduate courses on financial markets in Economics, Finance and Banking.

Public Economics

However, it crowds out capital and, hence, lowers per capita consumption. ... Compute the optimal level of steady-state public debt, B ≥ 0, that maximizes the expected lifetime utility of the ... The optimum quantity of debt.

Public Economics

Today, the most pressing challenges for public economics are of macroeconomic nature: pensions, debt, income distribution, and fiscal sustainability. All these problems are compounded by the phenomenon of demographic transition and aging. This graduate textbook addresses these issues with the help of state-of-the-art macroeconomic tools that are based on a sound microfoundation and rooted in empirical evidence. Different from the standard partial-equilibrium analysis in traditional textbooks on public economics, the concept of general equilibrium helps to account for compensating or amplifying side-effects of economic policy. GAUSS and MATLAB computer code as well as teaching material (slides) are available as downloads from the author's homepage.

The Debt Burden and Its Consequences for Monetary Policy

Barro, R. (1995) “Optimal Debt Management', working paper 5327, National Bureau of Economic Research, Cambridge, Mass., USA and (1997) in this ... Friedman, M. (1969) The Optimum Quantity of Money and Other Essays (Chicago: Aldine).

The Debt Burden and Its Consequences for Monetary Policy

In all countries debt and deficits of the public sector are at the heart of economic policy debate. Debt and deficits pose major problems, all the more pressing in Europe because of the Maastricht criteria for entry into European Monetary Union. And in the developing world debt has been associated with major financial crises. This volume, arising from an International Economic Association conference at the Bundesbank, sees academics and policy makers debate the key issues and their implications in theory and practice.

Fiscal Policy in Dynamic Economies

7 The golden-rule of capital accumulation was discovered by Phelps and independently by other economists, as acknowledged by ... Aiyagari, S.R. & E.R. McGrattan (1998), “The Optimum Quantity of Debt,” Journal of Monetary Economics 42, ...

Fiscal Policy in Dynamic Economies

The role of fiscal policy in short-run macroeconomic stabilization is, by now, well known in the academic literature and in policy circles. However, this focus on the short-run, especially in a democracy, means that much less attention has been paid to the other consequences of the use of fiscal policy. By studying the intergenerational-welfare aspects of fiscal policy, this book deals with some fundamental issues of fiscal policy. Why does public debt tend to rise over time in democracies? Why is there a tendency for government spending on consumption and on social security to grow? Why do governments fail to invest in public capital adequately? Should a dollar transferred from the young be treated as a dollar transferred to the old? By studying the international aspects of fiscal policy, the book establishes international differences in fiscal policy as determinants of persistent trade imbalances and international indebtedness. It also considers some basic questions on international transfers and austerity in open economies. What criteria should be used to define a successful foreign-aid programme? Why is foreign aid likely to fail in a world of global wealth disparity? Can reliance be placed on the international coordination of austerity to improve welfare in the long run? Is austerity accompanied by international transfers superior to austerity unaccompanied by international transfers? This book based on the OLG model fills a gap on fiscal-policy issues in the recent spate of books on overlapping generations.

Business Studies

... aspects (v) Providing for optimum amount of working capital (vi) Building up reserves for future contingencies. 4. ... It is the relationship which exists between equity capital (ordinary shares and reserves) and long-term debt. 6.

Business Studies

A text Book on Businees Studies

Cost Accounting And Financial Management For C A Course 1

For designing the optimum capital structure he must select such a mix of sources of finance which will minimise the ... preference share capital , debentures , internal and other sources of funds in the total amount of capital which a ...

Cost Accounting And Financial Management  For C A  Course 1

This Book Is Designed As Per The New Syllabus Effective From 1St October 2001, Prescribed By The Institute Of Chartered Accountants Of India.The Book Has The Following Significant Features:It Contains Solutions Of Numerous Problems Set In The Previous C.A. Examinations.At The End Of Each Chapter Objective/Descriptive Type Questions With Answers And Summary Of Important Formulae Are Given. Descriptive Questions Will Enable The Students To Test Their Understanding Of The Subject.It Explains The Various Cost Accounting Principles And Concepts, Tool And Techniques Of Financial Management And Their Applications In Real Life Situations In A Simple And Lucid Language With Appropriate Examples, Diagrams, Tables, Etc.It Describes Different Sources Of Finance Available To Business Enterprises To Cater To Their Various Types Of Requirements.Examples Have Been Graded With Care.This Book Would Serve As An Excellent Comprehensive Text For Not Only C.A. Students But Also For Those Preparing For M.B.A., I.C.W.A.I (Inter), C.S. And Similar Examinations.