Institutional Affiliation: CICC
|The Capital Structure of Nations|
with : w23612
When a nation can finance its investments via foreign-currency denominated debt or domestic-currency claims, what is the optimal capital structure of the nation? Building on the functions of fiat money as both medium of exchange, and store of value like corporate equity, our model connects monetary economics, fiscal theory and international finance under a unified corporate finance perspective. With frictionless capital markets both a Modigliani-Miller theorem for nations and the classical quantity theory of money hold. With capital market frictions, a nation's optimal capital structure trades off inflation dilution costs and expected default costs on foreign-currency debt. Our framing focuses on the process by which new money claims enter the economy and the potential wealth redistributio...
Published: Patrick Bolton & Haizhou Huang, 2018. "The Capital Structure of Nations*," Review of Finance, vol 22(1), pages 45-82.
|Monetary Policies for Developing Countries: The Role of Corruption|
with : w10093
This paper examines the role of corruption in the design of monetary policies for developing countries and obtains several interesting results. First, pegged exchange rates, currency boards, or dollarization, while often prescribed as a solution to the problem of a lack-of-credibility for developing countries, is typically not optimal in countries with serious corruption. Second, the optimal degree of conservatism for a Rogoff (1985)-type central banker is an inverse function of the corruption level. Third, either an optimally-designed inflation target or an optimal conservative central banker is preferableto an exchange rate peg, currency board, or dollarization.
Published: Huang, Haizhou and Shang-Jin Wei. “Monetary Policies for Developing Countries: The Role of Institutional Quality.” Journal of International Economics 70, 1 (September 2006): 239-252.