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Abstract:
Lecture materials for International Financial Management, UCD.

Course notes

Abstract:
Since the EU enlargement, European migration policies were characterised by a fundamental inconsistency: faced by changes in public opinion toward migrants, the majority of the EU Member States have chosen to restrict the mobility of European citizens despite the increasing economic returns to immigration experienced in the three states (UK, Sweden and Ireland) that opted out of such restrictions. In this paper we compare the experiences with migration in Denmark and Ireland - two states that have exhibited dissimilar attitudes towards migration, and chosen different approaches to migration policy vis-à-vis the Accession States. The importance of this comparison rests on the fact that prior to the Accession, both countries exhibited some of the most liberal immigration policies in the EU. Yet, while Ireland embraced a liberal market-based approach, Denmark chose to favour humanitarian reasons for granting residency. Thus, the two countries represent similar overarching migration flows with differing selection mechanisms prior to the Accession and diametrically opposing policies following the Accession. Using a computable general equilibrium model, we show the differences in economic benefits from international migration for Denmark and Ireland. We attribute the differences in economic gains to the nature of migration flows and labour markets specifics in the two countries. We further discuss various differences between the two states in their approach to migration as potential drivers behind the economic returns to migration experienced in Ireland and Denmark.

migration, enlargement, welfare, attitudes

Abstract:
Lecture notes for International Financial Management course, UCD 2009.

International Financial Management

Abstract:
Present paper addresses the issue of the short and long run determination of the exchange rates in the Redux model of Obstfeld and Rogoff (1995). Current extension of the Redux model includes the investment projects that simultaneously can serve as investment allocation subject to the capital gains, as well as a regular consumption good. In contrast to the standard theoretical results, our model produces the exchange rate overshooting both in presence and in absence of price rigidities in the markets for final goods. This effect depends on the size of the owner-used capital goods expenditure relative to the total consumption expenditure, as well as the initial level of inflation at home. Depending on parameter values, and the initial conditions, the model supports possibility for exchange rate dynamics that include either overshooting or undershooting.

Exchange Rates, Overshooting, Capital, Owner-Occupied Housing

Abstract:
The present model proposes an extension of the Gertler and Rogoff (1990) model of international lending in the presence of moral hazard and the possibility of state-contingent and project-dependent repudiation risk along the lines of Lane (1999). By linking the level of repudiation risk to the size of the project, we show that investment projects arising in the marketplace will be constrained in the size of capital by the repudiation risk, even in case of the repudiation risk applying to the bad state of nature alone. This amplifies the results shown in Lane (1999) and can be interpreted as a debt ceiling within the context of international lending. The model provides a natural connection between the exogenous monitoring institutions development, the degree of corruption and bankruptcy/limited liability laws to the ability of entrepreneurs to raise investment funding.

Moral Hazard, Investment, Repudiation Risk, State Contingency, Project

Abstract:
Lecture notes set 3 for International Financial Management course.

International Financial Management, International Finance

Abstract:
This paper presents a model of endogenous growth in the presence of habit formation in consumption. We argue that in addition to the traditional disutility effects of habitual consumption, the past history of consumption represents a past record of transactions as well. As a result, the knowledge acquired in the process of past consumption leads to efficiency gains in allocating time to other activities. In particular, the investment technology in broad household capital can be seen as benefiting from the habitual consumption knowledge, while being subject to the costly new consumption pathways learning. These learning-by-consuming effects imply a faster speed of convergence to the steady state growth rate in consumption and a higher steady state ratio of capital to habits. Alternatively our model allows for the case where new consumption is associated with the accumulation of broad capital, as is consistent with the case where consumption goods can also be used in production. In this case convergence to steady state growth rate is slower.

habits, endogenous growth, transactions cost, capital

Abstract:
This model proposes an extension of the traditional habits in consumption literature to encompass the time-persistence of leisure demand. The model establishes a link between the habitual leisure and income effects, which amplifies the traditional effects on savings, investment and consumption distribution across periods. The disutility of habits stock varies with the strength of habit formation. At the same time, the wage elasticity of
demand for leisure and the income elasticity of consumption are shown to be functions of the strength of habit formation. The model concludes that while habitual leisure captures the effects of persistence in leisure, it fails to reflect the time dependency properties of consumption. This warrants a new approach to modelling consumption and leisure demand that includes the possibility for time dependent and weakly inseparable consumption and leisure.

Habits, Consumption, Leisure, Labor Supply

Abstract:
The main purpose of this article is to explore the role that informal organisations play in the legitimisation of regime change and the failure of key modern theories of globalisation and international relations (I.R.) to fully accredit the centrality of civic groups as agents of change. Following this, we use constructivist methodology in explaining gradual shifts in ideological mindsets and the socio-political aspirations. Briefly reviewing current events, this paper appraises the significance of unauthorised dissident movements, and their involvement in the proliferation of prominent trends, such as democratisation and terrorism.

Democratization, Development, Dissent, Terrorism, Extremism

Abstract:
This paper proposes a model of economy with weakly non-separable preferences for both work effort and consumption. Households who derive utility from consumption of a single commodity and leisure take into account the habitual dependency of their utility on both labour supply and consumption in the past. As a result, this model provides an analysis of the effects of labour income and consumption taxes increase on asset holdings, consumption and labour supply of households. The model of comprehensive habits is contrasted by the standard habits in consumption model that is extended to include endogenous labour supply decisions. We show that one of the main results of the model includes the possibility for using comprehensive habits to capture the simultaneous time persistency in the behaviour of both consumption and leisure demand. The model also yields results in capturing the possibility for either co-movement or counter-movement of the main choice variables in response to the exogenous tax policy change.

Habits, Consumption, Leisure, Income Tax

Abstract:
This paper develops a neoclassical growth model under the assumption of comprehensive habits that incorporate both consumption and labour supply decisions of the households. We show that in presence of comprehensive habits, households will supply more labour than in case of no habits. In addition we consider two possible psychological links between the wage rate and the habits mechanism. We distinguish between satisfaction effect of work effort and status effect of work effort by creating an explicit positive and negative links between higher wages and the importance of labour supply relative to consumption in determination of comprehensive habits stock. We analyse the different results obtained in the model under this distinction.

habits, consumption, labour supply, status

Abstract:
Classical models of inflation, utilising the transactions-based demand for money, predict that monetary policy will be ineffective in changing real variables. In response to this, the New Keynesian sticky-price models assume price-rigidity in order to address the possibility for the existence of real effects of monetary policy. At the same time, both major theories have difficulty in explaining persistency in the money demand of households in the absence of uncertainty. We develop a flexible price model with endogenous transactions-costs driven demand for money that captures the possibility for real effects of monetary policy and accounts for the persistency of money demand. In our model, persistency is derived from transactions technology that assumes the existence of learning-by-doing effects in shopping costs. We proceed to compare the model with the standard monetary model of inflation.

Inflation, Money Demand, Learning-by-Doing, Transactions Technology, Seigniorage

Abstract:
Current paper proposes an extension of the seminal model by Holmstrom Tirole (1997) of the exogenous liquidity supply in presence of moral hazard to the case that includes private asset recovery under the limited liability of the entrepreneur. In our model partial private recovery applies to the financial assets that are considered to be sunk by the investors. In this context, a distressed firm seeking second round financing for its investment project is able, within a limited range of shocks, to increase its private payoff in case of the project default. As the result, unable to use these funds to raise additional liquidity, the distressed firms faces a reduced range of acceptable shock values relative to Holmstrom Tirole set up. At the same time, domestic securities markets, even in absence of aggregate uncertainty, are shown to hold insufficient liquidity. As the result, distressed firms individually are unable to counter the shocks by holding claims against other firms even in case of the financial intermediation.

Investment, Asymmetric Information, Private Information, Repudiation Risk

Abstract:
This presentation, detailing my teaching philosophy in relation to academic research, was prepared for University of Cambridge.

Teaching, Research, Interaction

Abstract:
The following paper presents a set of philosophical arguments that extend the standard set of property rights under the classical libertarian perspective to include the individual rights to ownership, management and transfer of risk and uncertainty. The paper shows that an extension of property rights, proposed below, strengthens the libertarian arguments concerning the sufficiency of the minimal state for achievement of liberty and justice. However, as argued in the paper, property rights extension alone does not support the argument in favor of the minimal state as a necessary condition for justice. To achieve such argument, we extend the argument concerning the inalienable rights to include the rights to risk and uncertainty. We show that in presence of such rights, the infamous Nozickian assertion concerning the potential implications of continuity of the space of rationality with regards to its role in separation of the human domain from that of the other biological species, no longer holds. In addition we establish that incorporation of individual rights over risk and uncertainty into the set inalienable rights allows for resolution of the Hansson's causal dilution problem.

Property Rights, Risk, Uncertainty, Minimal State, Libertarian

Abstract:
This study explores the effect of owner-occupied housing asset holdings on the short and long run determination of exchange rates. In the presence of consumption goods that can simultaneously serve as investment allocation subject to capital gains¿such as owner-occupied housing¿the general equilibrium model, based on the Obstfeld and Rogoff Redux model, produces exchange rate overshooting both in the presence and in the absence of price rigidities in the markets for final goods. This effect depends on the size of owner-occupied housing expenditures relative to total consumption expenditures, the initial level of housing market inflation, capital gains in housing and other parameters of the model. Depending on parameter values and initial conditions, the model supports the possibility for exchange rate dynamics that include either overshooting or undershooting.

Exchange rates, Owner-occupied housing, Purchasing power parity

Abstract:
In many theoretical models of debt crises, the operative trigger for the run on sovereign debt is a shortage of the liquidity reserves necessary to finance short-term debt services. As a result, the concept of a solvent, illiquid sovereign debtor has generated significant literature on debt crises' links with currency and liquidity crises. In this chapter, I consider the two major forces interacting with liquidity and debt crises: the role of self-fulfilling expectations, plus inter-related fundamentals; and the link between the repudiation risk and liquidity crises. I also discuss growing literature on the role of the reserve requirement constraints in debt defaults and the balance of payments crises.

Foreign exchange rates, currency, liquidity, repudiation risk, debt crisis, self-fulfilling expectations

Abstract:
Many theoretical and empirical studies are devoted to the causes of underdevelopment and debt faced by the HIPCs. Yet, despite varied answers to these questions, the view that the debt problem is the leading cause of the HIPCs' inability to generate economic growth - either through placing a ceiling on governments' ability to invest in infrastructure, education and health services, or through reducing economies' capacity to invest export revenue within the exporting country, or both - motivates political leaders, academics and NGOs in their desire to resolve the problem of debt overhang in the HIPCs. In this light, it is important to consider the evidence on whether or not debt relief can be seen as a sufficient and necessary condition for fostering economic development, growth and more equitable distribution of wealth in the HIPCs. The present chapter is not designed to provide a direct analysis of the debt-development links. Instead, it looks into the past history of debt relief in order to identify the successful application of such relief in achieving the broader objective of restarting economic development. It argues that, historically, such a case of effective debt relief was provided by the Brady Plan. It asks the question whether today's HIPCs are poised to gain significantly in growth if Brady-type debt relief is introduced. To do so it considers the experiences of the Brady Plan countries and today's HIPCs.

International debt, Development, HIPC, Brady Plan

Abstract:
Since the mid-1990s, Ireland has been significantly increasing its bilateral and EU framework financial assistance to the Palestinian Authority. The majority of such aid falls under the direct state-to-state aid and emergency/humanitarian assistance programmes. This chapter first examines direct aid to the Palestinian Authority and places it in the context of EU-wide aid programmes. The chapter then proceeds to examine economic and social efficiency of Irish aid to the Palestinian Authority.

Aid, Development, Economic Growth, Employment

Abstract:
The author develops a model of optimal taxation in the presence of consumption and labor supply references, which extends the model of Ljungqvist and Uhlig (2000). The paper shows that under the assumed 'keeping up with the Joneses' style peer-group effects, in both consumption and labor supply, optimal tax on capital remains negative. However, with respect to the optimal labor tax, the first-best policy requires positive or negative labor income taxation depending on the strength of referencing in consumption, relative to the strength of referencing in labor, as well as other parameters of the model. This result extends Guo (2003) conclusions. In terms of fiscal policy prescriptions, the author shows that the presence of combined referencing effects in consumption and labor supply, as opposed to the referencing in consumption alone, reduces the scope of the Keynesian intervention.