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Horacio Sapriza

Bio: Horacio Sapriza is an academic researcher from Federal Reserve System. The author has contributed to research in topics: Sovereign default & Debt. The author has an hindex of 24, co-authored 76 publications receiving 2440 citations. Previous affiliations of Horacio Sapriza include Rutgers University & Federal Reserve Board of Governors.


Papers
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Journal ArticleDOI
TL;DR: In this paper, the authors developed a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical.
Abstract: Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies.

21 citations

Posted Content
TL;DR: Aguiar and Gopinath as discussed by the authors studied the role of the exclusion assumption for business cycle properties of emerging economies and compared them with those of the same model without exclusion, and found that the business cycle statistics of the model are not significantly affected by the exclusion punishment.
Abstract: (ProQuest: ... denotes formulae omitted.) Business cycles in small emerging economies differ from those in developed economies. Emerging economies feature interest rates that are higher, more volatile, and countercyclical (interest rates are usually acyclical in developed economies). These economies also feature higher output volatility, higher volatility of consumption relative to income, and more countercyclical net exports.1 Recent research is trying to develop a better understanding of these facts, as has been done for U.S. business cycles. Because of the high volatility and countercyclicality of the interest rate, the (state-dependent) borrowing-interest rate menu is a key ingredient in any model designed to explain the cyclical behavior of quantities and prices in emerging economies. Some studies assume an exogenous interest rate.2 Others provide microfoundations for the interest rate based on the risk of default.3 This is the approach taken by recent quantitative models of sovereign default, which are based on the framework proposed by Eaton and Gersovitz (1981).4 These articles build on the assumption that lenders can punish defaulting countries by excluding them from international financial markets. The assumption is controversial on several grounds. First, it appears to be at odds with the existence of competitive international capital markets (which is assumed in these models). It is not obvious that competitive creditors would be able to coordinate cutting off credit to a country after a default episode.5 Second, empirical studies suggest that once other variables are used as controls, market access is not significantly influenced by previous default decisions (see, for example, Gelos, Sahay, and Sandleris 2004, Eichengreen and Portes 2000, and Meyersson 2006).6 1. SUMMARY OF RESULTS This article studies the role of the exclusion assumption for business cycle properties of emerging economies. It first describes the business cycle properties of a sovereign default model with exclusion and compares them with those of the same model without exclusion. The article finds that the presence of exclusion punishment is responsible for a high fraction of the sovereign debt that can be sustained in equilibrium. It also finds that the business cycle statistics of the model are not significantly affected by the exclusion punishment. The model without exclusion generates annual debt-output ratios of less than 2 percent. Whereas, the model with exclusion generates debt-output ratios between 4.8 and 6.3 percent. On the other hand, the cyclical behavior of consumption, output, interest rate, and net exports are not fundamentally different in the models with and without exclusion. An additional limitation shared by both model environments is that the volatility of the interest rate and (to a lesser extent) of the trade balance are too low compared to the data. This suggests that the exclusion assumption does not play an important role in these dimensions, and therefore future studies that do not rely on the threat of financial exclusion will not necessarily be handicapped in explaining the business cycle in emerging economies. The model studied in this article builds on the framework studied inAguiar and Gopinath (2006), which in turn, quantifies the model presented by Eaton and Gersovitz (1981). The most appealing feature about this setup is that it reduces the default decision to a simple tradeoff between current and future consumption without a major departure from the workhorse model used for real business cycle analysis in the last decades. Recent quantitative studies on sovereign default have shown that this environment can potentially account for important business cycle features in emerging economies and that it can be extended to address other issues (such as the optimal maturity structure of sovereign debt).7 The framework studied in Aguiar and Gopinath (2006) is the simplest among the ones presented in recent studies. …

20 citations

Journal ArticleDOI
TL;DR: In this article, the authors study the presence of asymmetries in the transmission of monetary policy in the United States and find that the bank lending channel is stronger when the Federal Reserve tightens monetary policy, particularly when the monetary policy stance is expansionary.

19 citations

Posted Content
TL;DR: In this article, the authors build a model of sovereign debt in which default risk, interest rates, and debt depend not only on current fundamentals but also on news about future fundamentals, and the model predicts lower variability of consumption, less countercyclical trade balance and interest rate spreads, as well as a higher level of debt more in line with the characteristics of developed economies.
Abstract: This paper builds a model of sovereign debt in which default risk, interest rates, and debt depend not only on current fundamentals but also on news about future fundamentals. News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt. First, in the model with news shocks not all defaults occur in bad times, bringing the model closer to the data. Second, the news shocks help account for key differences between emerging markets and developed economies: as the precision of the news improves the model predicts lower variability of consumption, less countercyclical trade balance and interest rate spreads, as well as a higher level of debt more in line with the characteristics of developed economies. Finally, the model also captures the hump-shaped relationship between default rates and the precision of news obtained from the data.

15 citations

Journal ArticleDOI
TL;DR: In this article, the authors studied the impact of sovereign debt rating changes on stock liquidity for stocks from 40 countries for the period 1990-2009 and found that sovereign rating changes significantly affect stock liquidity.
Abstract: This paper studies the impact of sovereign debt rating changes on liquidity for stocks from 40 countries for the period 1990–2009. We find that sovereign rating changes significantly affect stock liquidity. The impact is stronger for downgrades than for upgrades, and is nonlinear in event size. The loss of investment grade has a particularly strong negative impact on stock liquidity. We also find that some stock characteristics and country legal and macroeconomic environment are important in explaining the differences in the impact of sovereign credit rating changes on stock liquidity across countries.

13 citations


Cited by
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01 Feb 1951
TL;DR: The Board of Governors' Semiannual Agenda of Regulations for the period August 1, 1980 through February 1, 1981 as discussed by the authors provides information on those regulatory matters that the Board now has under consideration or anticipates considering over the next six months.
Abstract: Enclosed is a copy of the Board of Governors’ Semiannual Agenda of Regulations for the period August 1, 1980 through February 1, 1981. The Semiannual Agenda provides you with information on those regulatory matters that the Board now has under consideration or anticipates considering over the next six months, and is divided into three parts: (1) regulatory matters that the Board had considered during the previous six months on which final action has been taken; (2) regulatory matters that have been proposed for public comment and that require further Board consideration; and (3) regulatory matters that the Board may consider over the next six months.

1,236 citations

Posted Content
TL;DR: This paper developed a small open economy model to study default risk and its interaction with output, consumption, and foreign debt, which predicts that default incentives and interest rates are higher in recessions, as observed in the data.
Abstract: Recent sovereign defaults in emerging countries are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output, consumption, and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default occurs in equilibrium because asset markets are incomplete. The model predicts that default incentives and interest rates are higher in recessions, as observed in the data. The reason is that in a recession, a risk averse borrower finds it more costly to repay non-contingent debt and is more likely to default. In a quantitative exercise the model matches various features of the business cycle in Argentina such as: high volatility of interest rates, higher volatility of consumption relative to output, a negative correlation of interest rates and output and a negative correlation of the trade balance and output. The model can also predict the recent default episode in Argentina.

938 citations

Journal ArticleDOI
TL;DR: This article developed a small open economy model to study default risk and its interaction with output, consumption, and foreign debt, which predicts that default incentives and interest rates are higher in recessions, as observed in the data.
Abstract: Recent sovereign defaults in emerging countries are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output, consumption, and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default occurs in equilibrium because asset markets are incomplete. The model predicts that default incentives and interest rates are higher in recessions, as observed in the data. The reason is that in a recession, a risk averse borrower finds it more costly to repay non-contingent debt and is more likely to default. In a quantitative exercise the model matches various features of the business cycle in Argentina such as: high volatility of interest rates, higher volatility of consumption relative to output, a negative correlation of interest rates and output and a negative correlation of the trade balance and output. The model can also predict the recent default episode in Argentina.

783 citations

Journal ArticleDOI
TL;DR: This paper proposed a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals, which is a natural litmus test for macroeconomic models.
Abstract: Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investment specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply. (JEL

580 citations