Juan David Prada Sarmiento | Northwestern University (original) (raw)
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Papers by Juan David Prada Sarmiento
The unfolding of the 2007 world financial and economic crisis has highlighted the vulnerability o... more The unfolding of the 2007 world financial and economic crisis has highlighted the vulnerability of real economic activity to strong fluctuations in asset prices.
Which is the optimal monetary policy in an economy like the Colombian that is exposed to swings in asset prices? What is the implication in terms of Central Bank losses when it follows a standard simple rule instead of the optimal monetary policy? To answer these questions we use a Dynamic Stochastic General Equilibrium (DSGE) model with physical capital and sticky wages for the Colombian economy and derive the optimal monetary policy. Then, we explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic under the optimal policy rule and alternative specifications of simple rules and definitions of output gap.
Using Bayesian estimation techniques, we estimate a small open economy dynamic stochastic general... more Using Bayesian estimation techniques, we estimate a small open economy dynamic stochastic general equilibrium model with credit-market imperfections for the Colombian economy. We show that the combination of balance sheet effects and the choice of monetary policy regime are likely to play an important role in the magnification and propagation of initial shocks to the Colombian economy. As an application we show that our model explains the 1998-1999 crisis in Colombia, when a sharp rise in spreads on a relatively small proportion of international debt were passed strongly onto domestic lending rates, provoking a severe recession.
papers.ssrn.com
This paper theoretically assesses the role that uncertainty plays in the intensity of conflicts. ... more This paper theoretically assesses the role that uncertainty plays in the intensity of conflicts. The standard two-player rent-seeking contest model (Tullock (1980)) is extended to allow for privately known subjective values of the prize. The conflict is modeled as a Bayesian game on which each player’s valuation is drawn independently from arbitrary distributions. We find sufficient conditions for when first-order and second-order stochastic dominance refinements in the distributions cause predictable movements in the conflict’s dissipation. We focus on arbitrary contest success functions and arbitrary independent distributions for each player, allowing us to extend our analysis beyond the case of symmetric equilibria.
DOCUMENTOS CEDE, Jan 1, 2010
Most of the conflict theory papers have used a one-shot game set-up. This does not correspond to ... more Most of the conflict theory papers have used a one-shot game set-up. This does not correspond to reality and is certainly incapable of modeling real conflict situations. We propose a dynamic model with N-agents in an in finite time frame which allow us to adequately analyze conflicts. The dynamic aspects of the conflict come at least from two sources: first, the preferences on the good in dispute are not static; second, agents in conflict can influence the future of the conflict by making investment in conflict’s technology. We use a simple deterministic rule that defines the evolution of the subjective valuation for the good in dispute according to the results obtained by the agents in the recent past. During each period the realization of stochastic variables of the nature’s states induces uncertainty in the game. The model is a theoretical approach that can be applied to evaluate the role of uncertainty and valuations’ evolution on the optimal choices of forward-looking economic agents that seek to appropriate a share of a divisible resource.
This paper provides a simple proof of the result that if a production function is homogeneous, di... more This paper provides a simple proof of the result that if a production function is homogeneous, displays non-increasing returns to scale, is increasing and quasiconcave, then it is concave. If the function is strictly quasiconcave or one-to-one, homogeneous, displays decreasing returns to scale and if either it is increasing or if 0 is in its domain, then it is strictly concave. Finally it is shown that we cannot dispense with these assumptions.
La economía colombiana presenta un ciclo económico típico de una economía pequeña y abierta: vola... more La economía colombiana presenta un ciclo económico típico de una economía pequeña y abierta: volatilidad de la productividad similar a la volatilidad del PIB, consumo suave, inversión muy volátil; consumo, inversión e importaciones procíclicas; balanza comercial contracíclica. El objetivo del presente trabajo es reproducir estos hechos cualitativa y cuantitativamente a través de un sencillo modelo de equilibrio general para una economía pequeña y abierta calibrado para Colombia, y estudiar la respuesta de las variables fundamentales a choques exógenos en productividad, tasas de interés y política fiscal. Se realiza entonces un análisis del alcance real del modelo básico RBC para reproducir los hechos estilizados. Finalmente, se concluye que un modelo básico RBC es una buena herramienta en la reproducción de los hechos estilizados. Además permite el estudio de funciones de impulso-respuesta. Sin embargo, el modelo falla en la reproducción de los hechos estilizados del mercado laboral por la ausencia de un mecanismo de ajuste en el número de ocupados, y parece subestimar la variabilidad del consumo y la variabilidad relativa de la inversión respecto al PIB.
Borradores de Economia, Jan 1, 2009
Este artículo estudia el mecanismo de transmisión de la política monetaria a través de los salari... more Este artículo estudia el mecanismo de transmisión de la política monetaria a través de los salarios reales y la oferta de trabajo. El trade-off inflación producto depende de la calificación de los trabajadores y de la elasticidad de la oferta de trabajo al salario real. Se plantea un modelo teórico simple que incorpora la segmentación entre trabajadores calificados y no calificados y las restricciones en el acceso al sistema financiero. Utilizando el método generalizado de momentos se estima la elasticidad de Frisch de la oferta de trabajo. Se construyeron series de salarios representativos y de horas ofrecidas al mercado, utilizando una aproximación diferente a la encontrada en la literatura en general, que utiliza el número de horas trabajadas. La estimación puntual arrojó una elasticidad de Frisch de 0,31 y una elasticidad de sustitución intertemporal de 0,42. La oferta laboral es inelástica en Colombia, generando que los costos en términos de producción de la estabilización de precios sean importantes.
Borradores de Economia, Jan 1, 2008
This paper analyses the role of a costly financial system in the transmission of monetary policy.... more This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based on Hamann and Oviedo (2006). The presence of the financial intermediation naturally allows the introduction of standard policy instruments: the repo interest rate and the compulsory reserve requirements. The model is calibrated to match key steady-state ratios of Colombia and is used to evaluate the alternative policy instruments. Monetary policy conducted through the repo interest rate has the standard effects predicted by the new-keynesian framework. But changes in the compulsory reserve requirement rate may generate, under different scenarios, totally different reactions on economic activity, and little quantitative effects on inflation rates and aggregate demand. Therefore this last policy instrument appears to be uneffective and unreliable.
Borradores de …, Jan 1, 2011
The unfolding of the 2007 world financial and economic crisis has highlighted the vulnerability o... more The unfolding of the 2007 world financial and economic crisis has highlighted the vulnerability of real economic activity to strong fluctuations in asset prices.
Which is the optimal monetary policy in an economy like the Colombian that is exposed to swings in asset prices? What is the implication in terms of Central Bank losses when it follows a standard simple rule instead of the optimal monetary policy? To answer these questions we use a Dynamic Stochastic General Equilibrium (DSGE) model with physical capital and sticky wages for the Colombian economy and derive the optimal monetary policy. Then, we explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic under the optimal policy rule and alternative specifications of simple rules and definitions of output gap.
Using Bayesian estimation techniques, we estimate a small open economy dynamic stochastic general... more Using Bayesian estimation techniques, we estimate a small open economy dynamic stochastic general equilibrium model with credit-market imperfections for the Colombian economy. We show that the combination of balance sheet effects and the choice of monetary policy regime are likely to play an important role in the magnification and propagation of initial shocks to the Colombian economy. As an application we show that our model explains the 1998-1999 crisis in Colombia, when a sharp rise in spreads on a relatively small proportion of international debt were passed strongly onto domestic lending rates, provoking a severe recession.
papers.ssrn.com
This paper theoretically assesses the role that uncertainty plays in the intensity of conflicts. ... more This paper theoretically assesses the role that uncertainty plays in the intensity of conflicts. The standard two-player rent-seeking contest model (Tullock (1980)) is extended to allow for privately known subjective values of the prize. The conflict is modeled as a Bayesian game on which each player’s valuation is drawn independently from arbitrary distributions. We find sufficient conditions for when first-order and second-order stochastic dominance refinements in the distributions cause predictable movements in the conflict’s dissipation. We focus on arbitrary contest success functions and arbitrary independent distributions for each player, allowing us to extend our analysis beyond the case of symmetric equilibria.
DOCUMENTOS CEDE, Jan 1, 2010
Most of the conflict theory papers have used a one-shot game set-up. This does not correspond to ... more Most of the conflict theory papers have used a one-shot game set-up. This does not correspond to reality and is certainly incapable of modeling real conflict situations. We propose a dynamic model with N-agents in an in finite time frame which allow us to adequately analyze conflicts. The dynamic aspects of the conflict come at least from two sources: first, the preferences on the good in dispute are not static; second, agents in conflict can influence the future of the conflict by making investment in conflict’s technology. We use a simple deterministic rule that defines the evolution of the subjective valuation for the good in dispute according to the results obtained by the agents in the recent past. During each period the realization of stochastic variables of the nature’s states induces uncertainty in the game. The model is a theoretical approach that can be applied to evaluate the role of uncertainty and valuations’ evolution on the optimal choices of forward-looking economic agents that seek to appropriate a share of a divisible resource.
This paper provides a simple proof of the result that if a production function is homogeneous, di... more This paper provides a simple proof of the result that if a production function is homogeneous, displays non-increasing returns to scale, is increasing and quasiconcave, then it is concave. If the function is strictly quasiconcave or one-to-one, homogeneous, displays decreasing returns to scale and if either it is increasing or if 0 is in its domain, then it is strictly concave. Finally it is shown that we cannot dispense with these assumptions.
La economía colombiana presenta un ciclo económico típico de una economía pequeña y abierta: vola... more La economía colombiana presenta un ciclo económico típico de una economía pequeña y abierta: volatilidad de la productividad similar a la volatilidad del PIB, consumo suave, inversión muy volátil; consumo, inversión e importaciones procíclicas; balanza comercial contracíclica. El objetivo del presente trabajo es reproducir estos hechos cualitativa y cuantitativamente a través de un sencillo modelo de equilibrio general para una economía pequeña y abierta calibrado para Colombia, y estudiar la respuesta de las variables fundamentales a choques exógenos en productividad, tasas de interés y política fiscal. Se realiza entonces un análisis del alcance real del modelo básico RBC para reproducir los hechos estilizados. Finalmente, se concluye que un modelo básico RBC es una buena herramienta en la reproducción de los hechos estilizados. Además permite el estudio de funciones de impulso-respuesta. Sin embargo, el modelo falla en la reproducción de los hechos estilizados del mercado laboral por la ausencia de un mecanismo de ajuste en el número de ocupados, y parece subestimar la variabilidad del consumo y la variabilidad relativa de la inversión respecto al PIB.
Borradores de Economia, Jan 1, 2009
Este artículo estudia el mecanismo de transmisión de la política monetaria a través de los salari... more Este artículo estudia el mecanismo de transmisión de la política monetaria a través de los salarios reales y la oferta de trabajo. El trade-off inflación producto depende de la calificación de los trabajadores y de la elasticidad de la oferta de trabajo al salario real. Se plantea un modelo teórico simple que incorpora la segmentación entre trabajadores calificados y no calificados y las restricciones en el acceso al sistema financiero. Utilizando el método generalizado de momentos se estima la elasticidad de Frisch de la oferta de trabajo. Se construyeron series de salarios representativos y de horas ofrecidas al mercado, utilizando una aproximación diferente a la encontrada en la literatura en general, que utiliza el número de horas trabajadas. La estimación puntual arrojó una elasticidad de Frisch de 0,31 y una elasticidad de sustitución intertemporal de 0,42. La oferta laboral es inelástica en Colombia, generando que los costos en términos de producción de la estabilización de precios sean importantes.
Borradores de Economia, Jan 1, 2008
This paper analyses the role of a costly financial system in the transmission of monetary policy.... more This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based on Hamann and Oviedo (2006). The presence of the financial intermediation naturally allows the introduction of standard policy instruments: the repo interest rate and the compulsory reserve requirements. The model is calibrated to match key steady-state ratios of Colombia and is used to evaluate the alternative policy instruments. Monetary policy conducted through the repo interest rate has the standard effects predicted by the new-keynesian framework. But changes in the compulsory reserve requirement rate may generate, under different scenarios, totally different reactions on economic activity, and little quantitative effects on inflation rates and aggregate demand. Therefore this last policy instrument appears to be uneffective and unreliable.
Borradores de …, Jan 1, 2011