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In this paper, we revisit the fiscal theory of the price level (FTPL) within the New Keynesian (NK) model. We show in which cases the average maturity of government debt matters for the transmission of policy shocks. The central task of this paper is to shed light on the theoretical predictions of the maturity structure on macro dynamics with an emphasis on model-implied expectations. In particular, we address the transmission channels of monetary and fiscal policy shocks on the interest rate and inflation dynamics. Our results illustrate the role of the maturity of existing debt in the wake of skyrocketing debt-to-GDP ratios and increasing government expenditures. We highlight our results by quantifying the effects of the large-scale US fiscal packages (CARES) and predict a surge in inflation if the deficits are not sufficiently backed by future surpluses.

This dissertation consists of three essays in Macro-Finance. The first two papers study tail risk in the hedge fund industry, and the last paper investigates the effects of fiscal irresponsibility in a monetary union under the Fiscal Theory of Price Level (FTPL) framework. In the first paper, we rely on the convergence trading model and the increasing participation of high-frequency trading (HFT) in the US fund industry to propose a new tail risk measure, HFTR. The growth of HFT raised the number of hedge funds that follow similar strategies and market signals, increasing trade overcrowding. Together with funds’ leverage, overcrowding may cause a high initial loss trigger fire sales that could affect the entire financial industry through a loop of investment positions liquidation. Kondor’s (2009) convergence trading equilibrium model illustrates well this mechanism. Motivated by the importance of these effects inside the fund industry, we estimate tail risk using the cross-section of hedge fund returns. We show that US hedge funds are exposed to our tail risk and that it helps to explain the cross-sectional dispersion of funds returns. We also compare our index with other tail risk measures in the literature and find that ours seems to better capture both the hedge funds’ exposure to extreme risks and the cross-sectional dynamic of returns. In the second essay, we estimate tail risk using different estimation methods for the Brazilian hedge fund industry. The Brazilian hedge fund data is unique because it contains daily returns of all Brazilian funds, allowing us to compute tail risk measures that rely on daily observations and avoiding well-known biases to hedge fund datasets. Differently from the US, every investment fund in Brazil must report returns (and other relevant information) to the regulatory agency (CVM) daily. The database we use contains the universe of investment funds in Brazil, dead or alive, avoiding selection, survivorship, and instant history biases. We compared six different methodologies across three different estimation approaches and two different returns data (equity and hedge funds). We find that tail risk estimates are very different, not only across asset classes but also across methodologies. We also show that, although hedge funds in Brazil seem to exhibit more exposure to equity tail risk, hedge fund tail risk entails a higher predictive ability to performance both over time and cross-sectionally In the last paper, we show that if the fiscal policy of a fiscally irresponsible member of a monetary union follows a Markov Switching process with two regimes (responsible and irresponsible), the central bank may be able to determine the price level through an active monetary policy. This result contradicts the findings of Woodford (1996) and Bergin (2000). In our case, the only requirement is to the irresponsible regime be short-lived, or an aggressive primary surplus response to debt grow in the responsible (Ricardian) regime. We also show that once the economy has a unique equilibrium, the impact of the unstable fiscal rule is negligible. Esta dissertação consiste de três ensaios em macrofinanças. Os dois primeiros artigos estudam o risco de cauda na indústria de hedge funds, e o último investiga os efeitos da irresponsabilidade fiscal em uma união monetária sob a ótica da Teoria Fiscal do Nível de Preços (FTPL, em inglês). No primeiro artigo, nos baseamos no modelo de convergence trading e a crescente participação de high frequence trading (HFT) na indústria de fundos americana para propor uma nova medida de risco de cauda, o HFTR. O crescimento do HFT aumentou o número de fundos que seguem estratégias e sinais de mercado semelhantes, aumentando o overcrowding de posições. Juntamente com a alavancagem dos fundos, overcrowding pode fazer com que uma forte perda idiossincrática inicial desencadeie fire sales que podem afetar todo o setor financeiro por meio de um ciclo de liquidações de posições. Motivados pela importância desses efeitos na indústria de fundos, estimamos o risco de cauda usando os retornos dos hedge funds. Nossos resultados apontam que os fundos americanos estão expostos à nossa medida de risco de cauda e que ela ajuda a explicar a dispersão dos retornos individuais dos fundos. Também comparamos nosso índice com outras medidas de risco na literatura e encontramos que a nossa medida capta melhor a exposição dos hedge funds a riscos extremos e a dinâmica dos retornos individuais. No segundo trabalho, estimamos o risco de cauda usando diferentes metodologias para a indústria brasileira de fundos. Os dados de hedge funds brasileiros são únicos porque contêm retornos diários de todos os fundos brasileiros, permitindo calcular medidas de risco de cauda que se baseiam em observações diárias e evitando vieses conhecidos nas bases de dados americanas. Diferentemente dos EUA, todo fundo de investimento no Brasil deve reportar retornos (e outras informações relevantes) à agência reguladora (CVM) diariamente. O banco de dados que usamos contém o universo de fundos de investimento no Brasil, ativos ou inativos, evitando vieses comuns na literatura. Comparamos seis metodologias diferentes divididas em três métodos de estimação e duas bases de dados de retornos diferentes (ações e hedge funds). Concluímos que as estimativas de risco de cauda são muito diferentes, não apenas nas classes de ativos, mas também nas metodologias. Também mostramos que, embora os hedge funds brasileiros pareçam exibir mais exposição ao risco de cauda de retornos de ações, o risco de cauda de hedge funds tem um poder preditivo maior. No último artigo, mostramos que, se a política fiscal de um membro fiscalmente irresponsável de um união monetária segue um processo de Markov Switching com dois regimes (responsável e irresponsável), o banco central pode determinar o nível de preços por meio de uma política monetária ativa. Esse resultado contradiz os encontrados por Woodford (1996) e Bergin (2000). O único requisito no nosso modelo é que o regime irresponsável tenha vida curta ou uma resposta agressiva do superávit primário à dívida durante o regime responsável (Ricardiano). Também mostramos que, uma vez que a economia possua um equilíbrio único, o impacto da regra fiscal instável é quantitativamente insignificante.

We estimate fiscal reaction functions for a panel of 173 countries using data between 1970-2014. Most notably, we assess the existence of non-Ricardian regimes, as postulated in the Fiscal Theory of the Price Level (FTPL), or, contrarily, the possibility of Ricardian regimes. By means of several, well established and state-of-the-art, panel data techniques, we find that: governments have on average increased the primary balance as a response to higher previous government indebtedness, implying a Ricardian fiscal regime, contradicting the FTPL. In addition, the Ricardian results are confirmed for the advanced countries and for the euro area group, but are less clear for the other country groups, lacking statistical significance. A more Ricardian fiscal regime emerged essentially after 1995 and notably in the sub-period 2008-2014, after the Global Financial Crisis (before that statistical insignificance is the norm) From a P-VAR analysis, we find that increases in government indebtedness increase primary balances, supporting overall the existence of an average Ricardian fiscal regime. info:eu-repo/semantics/publishedVersion

Modifying the standard New-Keynesian model to replace firms’ full information and sticky prices with flexible prices and dispersed information, and imposing mild and plausible restrictions on the monetary authority’s decision rule, produces the striking results that (i) there exists a unique and globally stable steady-state rate of inflation, despite the possibility of a lower bound on nominal interest rates; and (ii) in the vicinity of steady-state, the price level is determinate (and not just the rate of inflation), despite the central bank targeting inflation. The specification of firms’ signal extraction problem under dispersed information removes the need to make use of Blanchard-Kahn conditions to solve the model, thereby removing the need to adhere to the Taylor principle and consequently circumventing the critique of Cochrane (2011). The model admits a determinate, stable solution with no role for sunspot shocks when the monetary authority responds by less than one-for-one to changes in expected inflation, including under an interest rate peg. An extension to include incomplete information on the part of the central bank permits the consideration of (rational) errors of judgement on the part of policymakers and provides a theoretical basis for inertial policymaking without interest rate smoothing, in support of Rudebusch (2002, 2006).

Fiyat seviyelerinin belirlenmesinde, FTPL teorisindeki geliþmeleri takiben miktar teorisinin eski mevcudiyeti sorgulanýr olmuþtur. FTPL Teorisi fiyat seviyelerinin sadece parasal büyüklüklerle deðil ayný zamanda maliye politikalarý etkisiyle de deðiþebileceðini göstermiþtir. FTPL Teorisine göre mali politikalarýn baskýn olduðu ekonomilerde fiyat seviyeleri baðýmsýz olarak uygulanan maliye politikalarýyla belirlenebilecektir. Bu görüþ hükümetlerin uyguladýðý ekonomi politikalarýný tekrar sorgulanýr hale getirmiþtir. Bu çalýþmanýn amacý Türkiye ekonomisinde 1985.01–2008.10 döneminde FTPL teorisi çerçevesinde Mali disiplini analiz etmektir. Çalýþma doðrusal modeller yerine doðrusal olmayan modeller kullanmayý amaçlamaktadýr. Bu modeller içinde belirgin olan STAR, LSTAR modelleri kullanýlacak, MLSTAR modelleri ile Stokastik Yapay Sinir Aðlarý ve MLP yöntemlerinden hareket ile SANN-MLSTAR modelleri geliþtirilecektir.