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Western Hemisphere > Argentina

You are looking at 1 - 3 of 3 items for :

  • Type: Journal Issue x
  • Expectations; Speculations x
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Cover IMF Working Papers
Uncertainty Premia, Sovereign Default Risk, and State-Contingent Debt
Mr. Francisco Roch
and
Francisco Roldán
We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond structure (e.g., the GDP-linked bond issued by Argentina in 2005), the model with robustness generates ambiguity premia in bond spreads that can explain most of what the literature has labeled as novelty premium. While the government would be better off with this bond when facing rational expectations lenders, this additional source of premia leads to welfare losses when facing robust lenders. Finally, we characterize the optimal design of the state-contingent bond and show how it varies with the level of robustness. Our findings rationalize the little use of these instruments in practice and shed light on their optimal design.
Keywords:
Sovereign debt; default; state-contingent debt instruments; robust control; ambiguity premia; probability distortion; robust lender; State-contingent debt; ambiguity aversion; debt structure; threshold bond; Bonds; Debt default; Rational expectations; Asset prices
Cover IMF Working Papers
How Well Do Economists Forecast Recessions?
Zidong An
,
João Tovar Jalles
, and
Mr. Prakash Loungani
We describe the evolution of forecasts in the run-up to recessions. The GDP forecasts cover 63 countries for the years 1992 to 2014. The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecasts during non-recession years are revised slowly; in recession years, the pace of revision picks up but not sufficiently to avoid large forecast errors. Our second finding is that forecasts of the private sector and the official sector are virtually identical; thus, both are equally good at missing recessions. Strong booms are also missed, providing suggestive evidence for Nordhaus’ (1987) view that behavioral factors—the reluctance to absorb either good or bad news—play a role in the evolution of forecasts.
Keywords:
WP; recession; recession year; bias; efficiency; information rigidity; forecast comparison; forecasted recession; IMF World Economic Outlook; comparing recession; recession episode; Production growth; Rational expectations; Global
Cover IMF Working Papers
Long Memory Processes and Chronic Inflation: Detecting Homogeneous Components in a Linear Rational Expectation Model
Mr. Fabio Scacciavillani
This paper is an empirical study of the links between monetary variables and inflation based on Cagan’s equation and its rational expectations solution, when the forcing variable is a fractionally integrated process. As demonstrated by Hamilton and Whiteman, the existence of bubbles and other extraneous influences can be detected only by verifying the difference in the order of integration between the monetary base and the price level series. This paper shows that a fractionally differenced model overcomes Evans’ critique of this test and that chronic inflation is essentially a monetary phenomenon caused by fiscal imbalance.
Keywords:
WP; price level; money supply; present value; consumer price price level; model ARFIMA; ARFIMA process; inflation expectation; stochastic process; Monetary base; Inflation; Hyperinflation; Rational expectations