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This paper highlights the importance of debt composition in setting optimal fiscal and monetary policy over short-run business cycles and in the long run. Nominal debt as state-contingent debt can be a significant policy tool to reduce the volatility of distortionary government policy, thereby reducing macroeconomic volatility while increasing equilibrium output and consumption. The welfare gain from using nominal debt to hedge against shocks to the government budget is as large as the welfare gain from the ability to issue debt.

Debts, Public. --- Monetary policy. --- Fiscal policy. --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Monetary management --- Currency boards --- Money supply --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Government policy --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- Labor --- Financial Markets and the Macroeconomy --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Debt Management --- Sovereign Debt --- National Government Expenditures and Related Policies: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Labor Economics: General --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Demand and Supply of Labor: General --- Public finance & taxation --- Labour --- income economics --- Monetary economics --- Welfare & benefit systems --- Expenditure --- Consumption --- Currencies --- Labor taxes --- National accounts --- Taxes --- Labor supply --- Expenditures, Public --- Economics --- Labor economics --- Money --- Income tax --- Labor market --- United States --- Income economics

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Income --- United States --- Income distribution --- Congresses. --- Distribution of income --- Income inequality --- Inequality of income --- Distribution (Economic theory) --- Disposable income --- Congresses --- United States of America

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Financial instruments are subject to inflation taxes on the wealth they represent and on the nominal income flows they provide. This paper explicitly introduces financial instruments into the standard stochastic growth model with money and production and shows that the value of the firm in this case is equal to the firm’s capital stock divided by inflation. The resulting asset-pricing conditions indicate that the effect of inflation on asset returns differs from the effects found in other papers by the addition of a significant wealth tax.

Finance: General --- Inflation --- Investments: Stocks --- Macroeconomics --- Monetary Policy --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Price Level --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Investment & securities --- Finance --- Stocks --- Stock markets --- Asset prices --- Financial instruments --- Prices --- Stock exchanges

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The recent fnancial crisis highlighted the role of Bank Holding Companies (BHCs) in exacerbating the crisis and in transmitting monetary policy beyond the local economy to global markets. Yet, little is known about their behavior, as most models of banking typically focus on banks with a loan desk. We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and explore the role of risk attitude and overleveraging by the trading desk. We trace the impact of monetary policy and market innovations on bank behavior in the presence of Basel III type regulations. To our knowledge, this is a first such exercise. We show that the value of the BHC is enhanced by operating both desks, even if they both are subject to common market shocks. We explore alternative regulatory remedies to ongoing efforts to ring-fence the proprietary trading business, and show that regulations that target bank governance can mitigate possible rogue trading and the overleveraging problem.

Banks and banking. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Bank holding companies --- Banks and banking --- Economic aspects --- Regulation --- E-books --- Banks and banking, Group --- Holding companies --- Banks and Banking --- Investments: General --- Money and Monetary Policy --- Industries: Financial Services --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Investment & securities --- Monetary economics --- Financial services law & regulation --- Loans --- Yield curve --- Securities --- Bank credit --- Financial services --- Market risk --- Financial regulation and supervision --- Interest rates --- Financial instruments --- Credit --- Financial risk management --- United States

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This paper compares the current regulatory capital requirements under the Dodd-Frank Act (DFA) and the 10-percent leverage ratio, as proposed by the U.S. Treasury and the U.S. House of Representatives' Financial CHOICE Act (FCA). We find that the majority of U.S. banks would not qualify for an "off-ramp"option—where regulatory relief is offered to FCA qualifying banks (QBOs)—unless considerable amounts of capital are added, and that large banks are much closer to the proposed leverage threshold and, therefore, are more likely to stand to gain from regulatory relief. The paper identifies an important moral hazard problem that arises due to the QBO optionality, where banks are likely to increase the riskiness of their asset portfolio and qualify for the FCA “off-ramp” relief with unintended effects on financial stability.

United States. --- Banks and Banking --- Investments: General --- Industries: Financial Services --- Accounting --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial Institutions and Services: General --- General Financial Markets: General (includes Measurement and Data) --- Public Administration --- Public Sector Accounting and Audits --- Banking --- Finance --- Financial services law & regulation --- Investment & securities --- Financial reporting, financial statements --- Systemically important financial institutions --- Capital adequacy requirements --- Securities --- Loans --- Financial institutions --- Financial regulation and supervision --- Financial statements --- Public financial management (PFM) --- Banks and banking --- Financial services industry --- Asset requirements --- Financial instruments --- Finance, Public --- United States