The event below has been cancelled.

The Department of Economics Recruiting Seminars presents

"Preventing Self-fulfilling Debt Crises"
with Michal Szkup, Graduate Student, New York University (Ph.D. expected 2014)

January 30, 2014
3:30-5:00 p.m.
Social Science Plaza B, Room 3218

This talk covers a model of self-fulfilling debt crises and uses it to study the effectiveness of various government policies in preventing such crises. In the model, a crisis is a result of the interaction between bad fundamentals and self-fulfilling expectations of households and lenders. He solves the model using the global games approach and analyze policy proposals directed at preventing debt crises, such as, an increase in taxes, spending cuts and fiscal stimulus. He explains the costs and benefits associated with each policy, provide conditions under which these policies decrease or increase probability of default, and investigate their welfare implications. He finds that tax increase or spending cuts tend to decrease the likelihood of crisis but may result in lower welfare. On the other hand, a well-timed fiscal stimulus significantly improves welfare, but it tends to increase the probability of a crisis. The above conclusions depend crucially on the timing and credibility of the government's policies, as well as on the initial state of the economy.

For further information, please contact Jennifer dos Santos, dayj@uci.edu or 949-824-5788.

 

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