The Buyer's Receipt Model for the Tax Consequences of the Assumption of Liabilities in Asset Purchases

AbstractWe study today’s two-tier money creation and destruction system: Commercial banks create bank deposits (privately created money) through loans to firms or asset purchases from the private sector. Bank deposits are destroyed when households buy bank equity or when firms repay loans. Central banks create electronic central bank money (publicly created money or reserves) through loans to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

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The non-linear effects of the Fed asset purchases

Studies in Nonlinear Dynamics & Econometrics ◽

10.1515/snde-2020-0022 ◽

2021 ◽

Vol 0 (0) ◽

Author(s):

Alessio Anzuini

Keyword(s):

Financial Markets ◽

Large Scale ◽

Balance Sheet ◽

Monetary Economics ◽

American Economic Review ◽

Vector Autoregressive ◽

Portfolio Balance ◽

State Dependent ◽

Linear Effects ◽

Asset Purchases

Abstract The Federal Reserve responded to the great financial crisis deploying new monetary policy tools, the most notable of which being the expansion of its balance sheet. In a recent paper, Weale, M., and T. Wieladek. 2016. “What Are the Macroeconomic Effects of Asset Purchases?” Journal of Monetary Economics 79 (C): 81–93 show that the asset purchases were effective in stimulating economic activity as well as inflation and asset prices. Here I show that their results are state dependent: large scale asset purchase are effective only when financial markets are impaired. Financial markets are under stress when the effective risk-bearing capacity of the financial sector is drastically reduced, i.e. when the excess bond premium (EBP) of Gilchrist, S., and E. Zakrajšek. 2012. “Credit Spreads and Business Cycle Fluctuations.” The American Economic Review 102 (4): 1692–72 exceed a certain threshold. Using an estimated threshold vector autoregressive model conditional on the EBP regime, I show that an increase in the balance sheet has expansionary effects on GDP and inflation when EBP is high, but not when it is low (as its effects become mostly insignificant). I argue that the high EBP can be interpreted as a proxy of market dis-functioning so that only when this channel of transmission is on, the unconventional policy is particularly effective. This suggests that models of transmission of unconventional policies, based on asset purchases, should focus also on the market functioning channel and not only on the portfolio balance one.

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Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints

American Economic Journal Macroeconomics ◽

10.1257/mac.20140002 ◽

2015 ◽

Vol 7 (1) ◽

pp. 1-43 ◽

Cited By ~ 10

Author(s):

Aloísio Araújo ◽

Susan Schommer ◽

Michael Woodford

Keyword(s):

Central Bank ◽

Financial Constraints ◽

Aggregate Demand ◽

Pareto Improvement ◽

Interest Rate Policy ◽

Collateral Constraints ◽

Additional Dimension ◽

Rate Policy ◽

Asset Purchases ◽

The One

We consider the effects of central bank purchases of a risky asset as an additional dimension of policy alongside “conventional” interest rate policy in a general-equilibrium model of asset pricing with endogenous collateral constraints. The effects of asset purchases depend on the way that they affect collateral constraints. We show that under some circumstances, central bank purchases relax financial constraints, increase aggregate demand, and may even achieve a Pareto improvement; but in other cases, they tighten financial constraints, reduce aggregate demand, and lower welfare. The latter case is almost certainly the one that arises if central bank purchases are sufficiently large. (JEL D51, E43, E44, E52, E58)

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Empowering Central Bank Asset Purchases: The Role of Financial Policies

SSRN Electronic Journal ◽

10.2139/ssrn.3331013 ◽

2019 ◽

Author(s):

Matthieu Darracq Paries ◽

Jenny Körner ◽

Niki Papadopoulou

Keyword(s):

Central Bank ◽

Financial Policies ◽

Asset Purchases

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Scrap Superannuation

10.31219/osf.io/957kz ◽

2020 ◽

Author(s):

Cameron Murray

Keyword(s):

Transition Period ◽

Pension System ◽

Maximum Amount ◽

Retirement Income ◽

Goods And Services ◽

Income Sources ◽

Fairness And Efficiency ◽

Vested Interests ◽

Asset Purchases ◽

Macroeconomic Efficiency

Economically, there can be only one retirement income system. This system allocates goods and services at the time they are needed to retirees who do not have alternative non-work income sources to sustain a socially acceptable level of welfare.Superannuation does not fulfil the requirements of a retirement income system. Instead, it is best thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme for the wealthy, which may ultimately have little effect on reducing reliance on the age pension system. The age pension vastly outperforms superannuation as a retirement income system across three key areas: macroeconomic cost, macroeconomic efficiency, and fairness. Vested interests perpetuate economic myths to avoid scrutiny of the superannuation system, such as 1) that the age pension system is financially constrained, 2) that pre-funding via asset purchases increases the capacity of a retirement income system, and 3) that superannuation is a payment from employers rather than from wages.Scrapping the superannuation system would massively improve Australia’s economic performance, and thus the performance of our retirement income system, the age pension. This can be done by forcing employers to pay what is now superannuation directly into wage accounts and allowing all super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances will receive no special tax treatment. The age pension system could also be enhanced in both size (payment rates, including rent assistance) and scope (reducing the age that people qualify from 67 to 60), vastly increasing the fairness and efficiency of Australia’s retirement income system and economy as a whole.

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