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Event Recap

Nobel laureate Robert E. Lucas will be awarded the University of Chicago’s rare and prestigious Division of Social Science Phoenix Prize in recognition of his influential contributions to changing the field of economics.

To commemorate this award, the Becker Friedman Institute, the Department of Economics, and the Division of the Social Sciences are hosting a conference in his honor at the University of Chicago. Distinguished colleagues and coauthors will participate in this research conference exploring the impact of Lucas’s work.

Agenda

Friday, October 7, 2016
On the Optimality of Financial Repression
There has been a long history of governments forcing banks to hold their debt in times of extreme need. This constraint, which Chari labels financial repression, is most often seen in wartime, when government spending is suddenly very high.

V.V. Chari presented a paper that asks if this is an efficient way to raise money, and if so, under what circumstances. He shows that if a government can commit to repaying its bonds, this is not an efficient way to raise government revenue. A government would be better off taxing capital directly.  Forcing banks to hold government debt at below-market rates has the same distorting effects as a tax on capital, but also leaves the banks more collateral-constrained than before, thus reducing investment even further.

However, if the government cannot commit to repaying its bonds, forcing banks to hold government bonds may be a useful policy tool. Why? A government bond default has different effects depending on whether the bonds are held by individuals or by banks. Defaults on individual holdings are costless socially, but defaults on banks reduce capital investment. If the government forces the banks to hold its bonds, it places itself in a position where default is more costly.  Thus, constraining banks to hold government bonds is a way governments can raise barriers and disincentives for future defaults.

The resulting pattern emerges: when there is a very high need for government spending—due to a major war, for example—the government will force banks to hold its bonds. This constraint is only needed when the outstanding supply of bonds is very high, and will typically be removed when government spending returns to normal levels.

Governments facing wide swings in spending are more likely to need to use this strategy.  But if the swings are high enough, financial repression can help the government retain the credibility of its bonds.

V.V. Chari, University of Minnesota
Discussant: Jean Pierre Danthine
Monetary Policy According to HANK
Benjamin Moll, Assistant Professor of Economics and International Affairs, Princeton University
Discussant: Lee Ohanian
Commuting, Migration, and Local Employment Elasticities
Esteban Rossi-Hansberg, Theodore A. Wells '29 Professor of Economics and International Affairs, Princeton University
Discussant: Marcel Boyer
Luncheon Talk
Neil Wallace, Pennsylvania State University
Reputation and Product Recalls
Boyan Jovanovic, New York University
Discussant: Christopher Phelan
Random Risk Aversion and Liquidity: a Model of Asset Pricing and Trade Volumes
Andrew Atkeson, Stanley M. Zimmerman Professor of Economics and Finance, University of California, Los Angeles
John H. Cochrane, Senior Fellow, Hoover Institution at Stanford University
Saturday, October 8, 2016
Technology, Skill, and Long-Run Growth
Nancy Stokey, The Frederick Henry Prince Distinguished Service Professor in Economics and the College; Director of Graduate Studies , the Kenneth C. Griffin Department of Economics
José A. Scheinkman, Edwin W. Rickert Professor of Economics, Columbia University
Social Insurance, Information Revelation, and Lack of Commitment
Mikhail Golosov, The Homer J. Livingston Professor in Economics and the College, the Kenneth C. Griffin Department of Economics
Juan Pablo Nicolini, Senior Research Economist, Federal Reserve Bank of Minneapolis
The Global Diffusion of Ideas
Video
Francisco Buera, University of California, Berkeley; Federal Reserve Bank of Chicago
Luncheon Talk
Edward S. Prescott, Arizona State University
More on the Taxation of Capital Income
Pedro Teles, Universidade Católica Portuguesa
Discussant: Iván Werning