Showing papers by "Juan M. Sánchez published in 2018"
TL;DR: This paper developed a model of endogenous sovereign debt maturity that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle.
31 citations
TL;DR: In this paper, a risk of default model with asymmetric information and costly screening is introduced to study the U.S. unsecured credit market during the information technology revolution.
Abstract: The information technology (IT) revolution coincided with the transformation of the U.S. unsecured credit market. Households' borrowing increased rapidly and there was an even faster increase in bankruptcy filings. A risk of default model with asymmetric information and costly screening is introduced to study this period. When information costs are high, the design of contracts under private information prevents some households from borrowing with a risk of default. As information costs drop, households borrow more and bankruptcy filings increase. Quantitative exercises suggest that the IT revolution may have played an important role in the transformation of the unsecured credit market. (JEL E43, E44, G33)
30 citations
TL;DR: The authors developed a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes, and employed dynamic discrete choice methods that allow for smoother decision rules, rendering the problem tractable.
Abstract: Sovereign debt crises involve debt restructurings characterized by a mix of face value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three factors are important in overcoming the effects of dilution and generating maturity extensions upon restructurings: income recovery after default, credit exclusion after restructuring, and regulatory costs of book value haircuts. We employ dynamic discrete choice methods that allow for smoother decision rules, rendering the problem tractable.
7 citations
TL;DR: In this article, the authors show that, despite informational frictions, the introduction of an unemployment insurance savings account (UISA) system may provide substantial benefits and that individuals obtain welfare gains equivalent to a 2.4 percent increase in consumption in every period.
6 citations
TL;DR: In this article, a quantitative model of news and sovereign debt default with endogenous maturity choice is presented, showing that a news shock has a larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity, suggesting that news about future economic developments may play an important role in these episodes.
5 citations
Posted Content•
TL;DR: In this article, the authors use newly available estimates on natural resources shares from Monge-Naranjo et al. (2017) to correctly measure the factor shares of physical and human capital for a large number of countries and periods.
Abstract: Is human capital allocated efficiently across countries? To answer this question, we need to differentiate misallocation from factor intensity differences. We use newly available estimates on natural resources shares from Monge-Naranjo et al. (2017) to correctly measure the factor shares of physical and human capital for a large number of countries and periods. We find that the global efficiency losses of the misallocation of human capital are around 60% of the world's output. Moreover, the misallocation of human capital seems to have worsened in the more recent years. Interestingly, we show that when physical and human capital can both be reallocated, physical capital would often ow from poor to rich countries, contrary to Lucas (1990)'s paradox.
5 citations
TL;DR: In this article, the authors study the endogenous determination of corporate debt maturity in a setting with default risk and show that firms with poor prospects and firms in more unstable industries will choose shorter maturities even if it is feasible to issue longer debt.
Abstract: We study the endogenous determination of corporate debt maturity in a setting with default risk. We assume that firms must access the bond market and they issue debt with a flexible structure (coupon, face value, and maturity). Initially, the firm is in a low growth/illiquid state that requires debt refinancing if it matures. Since lenders do not refinance projects with positive but small net present value, firms may be forced to default in the first phase. We call this liquidity risk. The technology is such that earnings can switch to a higher (but riskier) level. In this second phase firms have access to the equity market but they may default if this is the best option. We call this strategic default risk. In the model optimal maturity balances these two risks. We show that firms with poor prospects and firms in more unstable industries will choose shorter maturities even if it is feasible to issue longer debt. The model also offers predictions on how asset maturity, asset salability, and leverage influence maturity. Even though our model is extremely stylized we find that the predictions are roughly consistent with the evidence. Moreover, it offers some insights into the factors that determine the structure of the debt.
4 citations
TL;DR: It is shown that if one of the Pareto weights is sufficiently large, that agent does not have incentives to misreport, which implies that, under some conditions, the full information allocation is incentive compatible when agents have equal Pare to weights.
4 citations
Posted Content•
01 Jan 2018
TL;DR: In this article, a quantitative model of endogenous sovereign debt maturity choice and restructuring is developed to rationalize the debt dynamics observed around distressed debt restructurings, which smooths the borrower's decision rules on default and debt portfolio choices, rendering the problem tractable.
Abstract: Sovereign debt crises generally involve debt restructurings characterized by debt maturity extensions, delayed payments, face-value haircuts, and temporary financial autarky. We develop a novel quantitative model of endogenous sovereign debt maturity choice and restructuring that rationalizes the debt dynamics observed around distressed debt restructurings. The use of dynamic discrete choice solution methods allows us to smooth the borrower's decision rules on default and debt portfolio choices, rendering the problem tractable.
1 citations
Posted Content•
TL;DR: This paper revisited the merits of some of the most common explanations for the current low inflation rate and showed that the U.S. inflation rate has been below the Fed?s 2 percent inflation target since 2012.
Abstract: The U.S. inflation rate has been below the Fed?s 2 percent inflation target since 2012. In this article, we revisit the merits of some of the most common explanations for the current low inflation rate.
1 citations