ManuelAmador

Abstract. This paper presents a model of central bank reputation where inflation is a noisy function of central bank actions. In the model, a central bank can be “hawkish”, with a relatively high penalty for taking inflationary actions, or “dovish”, with a relatively low penalty. The central bank’s type varies according to a Markov process, and its reputation is the Bayesian posterior of households that it is a hawkish type. We show analytically that no Markov pooling equilibria exist: hawkish and dovish central banks must act differently. We then argue that without sufficient noise, it is difficult for Markov separating equilibria to exist either. But with sufficient noise, we show computationally that pure strategy separating equilibria exist and have appealing characteristics: both hawkish and dovish banks choose lower inflationary actions than they would in the absence of reputation considerations, and both types are most aggressive in attempting to gain a hawkish reputation when their current reputation is middling.

@article{AMPHE2026,
Author = {Amador, Manuel and Phelan, Christopher},
Title = {Central bank reputation with noise},
Journal = {Journal of Monetary Economics},
Volume = {158},
Year = {2026},
Pages = {103906},
DOI = {https://doi.org/10.1016/j.jmoneco.2026.103906},
URL = {https://www.sciencedirect.com/science/article/pii/S0304393226000218}
}

Abstract. We provide conditions for the feasibility of robust Pareto-improving (RPI) policies when markets are incomplete and the interest rate is below the growth rate. We allow for arbitrary heterogeneity in preferences and income risk and a wedge between the return to capital and bonds. An RPI improves risk sharing and can induce a more efficient level of capital. Elasticities of aggregate savings to changes in interest rates are the crucial ingredients to the feasibility of RPIs. Government debt may complement rather than substitute for capital in an RPI. Our analysis emphasizes the welfare-improving qualities of government bonds versus explicit redistribution.

@article{AGAMAR2024,
Author = {Aguiar, Mark and Amador, Manuel and Arellano, Cristina},
Title = {Micro Risks and (Robust) Pareto Improving Policies},
Journal = {American Economic Review},
Volume = {114},
Number = {11},
Year = {2024},
Month = {November},
Pages = {3669–3713},
DOI = {10.1257/aer.20210194},
URL = {https://www.aeaweb.org/articles?id=10.1257/aer.20210194}
}

Abstract. We present a tractable dynamic general equilibrium model of self-fulfilling bank runs, where banks trade capital in competitive and liquid markets but remain vulnerable to runs due to a loss of creditor confidence. We characterize how the vulnerability of an individual bank depends on its leverage position and the economy-wide asset prices. We study the effect of credit easing policies, in the form of asset purchases. When a banking crisis is generated by runs, credit easing can reduce the number of defaulting banks and enhance welfare. When the crisis is driven by fundamentals, credit easing may have adverse consequences.

@article{AMBI2024,
Author = {Amador, Manuel and Bianchi, Javier},
Title = {Bank Runs, Fragility, and Credit Easing},
Journal = {American Economic Review},
Volume = {114},
Number = {7},
Year = {2024},
Month = {July},
Pages = {2073–2110},
DOI = {10.1257/aer.20220328},
URL = {https://www.aeaweb.org/articles?id=10.1257/aer.20220328}}

Abstract.

@incollection{AGAMAL2023,
author = {Aguiar, Mark and Amador, Manuel and Alves Monteiro, Ricardo},
title = {Sovereign-Debt Crises and Floating-Rate Bonds},
booktitle = {Credibility of Emerging Markets, Foreign Investors' Risk Perceptions and Capital Flows},
editor = {Aguirre, Alvaro and Fernandez, Andres and Kalemli-Ozcan, Sebnem},
year = {2023},
pages = {159-84}
}

Abstract. This paper presents a continuous-time reputation model of sovereign debt allowing for both varying levels of partial default and full default. In it, a government can be a nonstrategic commitment type or a strategic opportunistic type, and a government's reputation is its equilibrium Bayesian posterior of being the commitment type. Our equilibrium has that for bond levels reachable by both types without defaulting, bigger partial defaults (or bigger haircuts for bond holders) imply higher interest rates for subsequent bond issuances, as in the data.

@article{AMPH2023,
Author = {Amador, Manuel and Phelan, Christopher},
Title = {Reputation and Partial Default},
Journal = {American Economic Review: Insights},
Volume = {5},
Number = {2},
Year = {2023},
Month = {June},
Pages = {158-72},
DOI = {10.1257/aeri.20210739},
URL = {https://www.aeaweb.org/articles?id=10.1257/aeri.20210739}}

Abstract. We analyze the Baron and Myerson (1982) model of regulation under the restriction that transfers are infeasible. Extending techniques from the delegation literature to incorporate an ex post participation constraint, we report sufficient conditions under which optimal regulation takes the form of price-cap regulation. We establish conditions under which the optimal price cap is set at a level such that no types are excluded and show that exclusion of higher cost types can be optimal when these conditions fail. We also provide conditions for the optimality of price-cap regulation when an ex post participation constraint is present and exclusion is infeasible.

@article{AMABAG2022,
author = {Amador, Manuel and Bagwell, Kyle},
title = {Regulating a monopolist with uncertain costs without transfers},
journal = {Theoretical Economics},
volume = {17},
number = {4},
pages = {1719-1760},
keywords = {Regulation, price caps, delegation theory, L43, L5, D82},
doi = {https://doi.org/10.3982/TE4691},
url = {https://onlinelibrary.wiley.com/doi/abs/10.3982/TE4691},
year = {2022}
}

Abstract. This paper presents a continuous‐time model of sovereign debt. In it, a relatively impatient sovereign government's hidden type switches back and forth between a commitment type, which cannot default, and an opportunistic type, which can, and where we assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price. In any Markov equilibrium, the opportunistic type mimics the commitment type when borrowing, revealing its type only by defaulting on its debt at random times. The equilibrium features a “graduation date”: a finite amount of time since the last default, after which time reputation reaches its highest level and is unaffected by not defaulting. Before such date, not defaulting always increases the country's reputation. For countries that have recently defaulted, bond prices and the total amount of debt are increasing functions of the amount of time since the country's last default. For countries that have not recently defaulted (i.e., those that have graduated), bond prices are constant.

@article{AMAPHE2021,
Author = {Amador, Manuel and Phelan, Christopher},
Title = {Reputation and Sovereign Default},
Journal = {Econometrica},
Volume = {89},
Number = {4},
Year = {2021},
Month = {July},
Pages = {1979-2010},
DOI = {10.3982/ECTA16685},
URL = {http://dx.doi.org/10.3982/ECTA16685}
}

Abstract. We establish that creditor beliefs regarding future borrowing can be self-fulfilling, leading to multiple equilibria with markedly different debt accumulation patterns. We characterize such indeterminacy in the Eaton-Gersovitz sovereign debt model augmented with long maturity bonds. Two necessary conditions for the multiplicity are (i) the government is more impatient than foreign creditors, and (ii) there are deadweight losses from default. The multiplicity is dynamic and stems from the self-fulfilling beliefs of how future creditors will price bonds; long maturity bonds are therefore a crucial component of the multiplicity. We introduce a third party with deep pockets to discuss the policy implications of this source of multiplicity and identify the potentially perverse consequences of traditional "lender of last resort" policies.

@article{AGUAMA2020,
Author = {Aguiar, Mark and Amador, Manuel},
Title = {Self-Fulfilling Debt Dilution: Maturity and Multiplicity in Debt Models},
Journal = {American Economic Review},
Volume = {110},
Number = {9},
Year = {2020},
Month = {September},
Pages = {2783-2818},
DOI = {10.1257/aer.20180831},
URL = {https://www.aeaweb.org/articles?id=10.1257/aer.20180831}
}

Abstract. We study the problem of a monetary authority pursuing an exchange rate policy that is inconsistent with interest rate parity because of a binding zero lower bound constraint. The resulting violation in interest rate parity generates an inflow of capital that the monetary authority needs to absorb by accumulating foreign reserves. We show that these interventions by the monetary authority are costly, and we derive a simple measure of these costs: they are proportional to deviations from the covered interest parity (CIP) condition and the amount of accumulated foreign reserves. Our framework can account for the recent experiences of "safe-haven" currencies and the sign of their observed deviations from CIP.

@article{AMABIABOCPER2020,
author = {Manuel Amador and Bianchi, Javier and Bocola, Luigi and Perri,  Fabrizio},
title = {Exchange Rate Policies at the Zero Lower Bound},
journal = {The Review of Economic Studies},
volume = {87},
number = {4},
pages = {1605-1645},
year = {2020},
month = {7},
issn = {0034-6527},
doi = {10.1093/restud/rdz059},
url = {https://doi.org/10.1093/restud/rdz059}
}

Abstract. This paper uses a Lagrangian approach to provide sufficient conditions under which money burning expenditures are used in an optimal delegation contract. For comparison, we also establish simple sufficient conditions for the optimality of a cap allocation under a restricted set of preferences for a benchmark setting in which money burning is not allowed. We also apply our findings to a model of cooperation and to a model with quadratic preferences and families of distribution functions. In addition, we provide several comparative statics results.

@article{AMADOR2020382,
title = {Money burning in the theory of delegation},
journal = {Games and Economic Behavior},
volume = {121},
pages = {382-412},
year = {2020},
issn = {0899-8256},
doi = {https://doi.org/10.1016/j.geb.2020.02.010},
url = {https://www.sciencedirect.com/science/article/pii/S089982562030035X},
author = {Manuel Amador and Kyle Bagwell},
keywords = {Optimal delegation, Money burning}
}

Abstract. This paper studies the losses to the citizenry when the private agents discount the future at different rates from their government. In the presence of such a disagreement, the private sector may prefer an environment in which the government is in financial autarky. Using a sequence of sovereign debt models, the paper quantifies the potential welfare losses that citizens suffer from the government's access to international bond markets. While the environment is not necessarily comprehensive, the analysis provides a counterweight to proposals that are designed to ease market access for sovereign borrowers.

@article{AGAMFO2020,
title = {On the Welfare Losses from External Sovereign Borrowing},
journal = {IMF Economic Review},
year = {2020},
volume = {68},
issue = {1},
pages = {163-194},
doi = {https://doi.org/10.1057/s41308-019-00103-2},
author = {Aguiar, Mark and Amador, Manuel and Fourakis, Stelios}
}

Abstract. Using a dual representation, we show that the Markov equilibria of the one-period-bond Eaton and Gersovitz (1981) incomplete markets sovereign debt model can be represented as a fixed point of a contraction mapping, providing a new proof of the uniqueness and existence of equilibrium in the benchmark sovereign debt model. The arguments can be extended to incorporate re-entry probabilities after default when the shock process is iid. Our representation of the equilibrium bears many similarities to an optimal contracting problem. We use this to argue that commitment to budget rules has no value to a benevolent government. We show how the introduction of long-term bonds breaks the link to the constrained planning problem.

@article{AGAM2019,
title = {A Contraction for Sovereign Debt Models},
journal = {Journal of Economic Theory},
volume = {183},
pages = {842-875},
year = {2019},
issn = {0022-0531},
doi = {https://doi.org/10.1016/j.jet.2019.08.005},
author = {Aguiar, Mark and Amador, Manuel}
}

Abstract. We study the interactions between sovereign debt default and maturity choice in a setting with limited commitment for repayment as well as future debt issuances. Our main finding is that under a wide range of conditions the sovereign should, as long as default is not preferable, remain passive in long-term bond markets, making payments and retiring long-term bonds as they mature but never actively issuing or buying back such bonds. The only active debt-management margin is the short-term bond market. We show that any attempt to manipulate the existing maturity profile of outstanding long-term bonds generates losses, as bond prices move against the sovereign. Our results hold regardless of the shape of the yield curve. The yield curve captures the average costs of financing at different maturities but is misleading regarding the marginal costs.

@article{AAHW2019,
Author = {Aguiar, Mark and Amador, Manuel and Hopenhayn, Hugo and Werning, Ivan},
Journal = {Econometrica},
Title = {Take the Short Route: Equilibrium Default and Debt Maturity},
Year = {2019},
Volume = {87},
Number = {2},
Pages = {423-462}
}

Abstract. In this note we extend the Amador and Bagwell (2013) conditions for confirming the optimality of a proposed interval delegation set to the possibility of degenerate intervals, in which the agent takes the same action at every state. We consider the cases of money burning as well as no money burning. These results allow us to provide new sufficient conditions on utility functions and state distributions to guarantee that some interval – degenerate or non-degenerate - will be optimal.

@article{ABF2017,
Author = {Amador, Manuel and Bagwell, Kyle and Frankel, Alex},
Journal = {Economic Theory Bulletin},
Title = {A Note on Interval Delegation},
Year = {2018},
Pages = {239-249},
Volume = {6},
Number = {2}
}

Abstract. In January 2015, in the face of sustained capital inflows, the Swiss National Bank abandoned the floor for the Swiss Franc against the Euro, a decision which led to the appreciation of the Swiss Franc. The objective of this paper is to present a simple framework that helps to better understand the timing of this episode, which we label a "reverse speculative attack". We model a central bank which wishes to maintain a peg, and responds to increases in demand for domestic currency by expanding its balance sheet. In contrast to the classic speculative attacks, which are triggered by the depletion of foreign assets, reverse attacks are triggered by the concern of future balance sheet losses. Our key result is that the interaction between the desire to maintain the peg and the concern about future losses can lead the central bank to first accumulate a large amount of reserves, and then to abandon the peg, just as we have observed in the Swiss case.

@article{ABBP2016,
Author = {Amador, Manuel and Bianchi, Javier and Bocola, Luigi and Perri, Fabrizio},
Journal = {Journal of Economic Dynamics and Control},
Pages = {125-137},
Title = {Reverse Speculative Attacks},
Volume = {72},
Year = {2016}
}

Abstract. We study optimal fiscal policy in a small open economy (SOE) with sovereign and private default risk and limited commitment to tax plans. The SOE's government uses linear taxation to fund exogenous expenditures and uses public debt to inter-temporally allocate tax distortions. We characterize a class of environments in which the tax on labor goes to zero in the long run, while the tax on capital income may be non-zero, reversing the standard prediction of the Ramsey tax literature. The zero labor tax is an optimal long run outcome if the economy is subject to sovereign debt constraints and the domestic households are impatient relative to the international interest rate. The front loading of tax distortions allows the economy to build a large (aggregate) debt position in the presence of limited commitment. We show that a similar result holds in a closed economy with imperfect inter-generational altruism, providing a link with the closed-economy literature that has explored disagreement between the government and its citizens regarding inter-temporal tradeoffs.

@article{Aguiar201637,
Author = {Aguiar, Mark and Amador, Manuel},
Doi = {https://dx.doi.org/10.1016/j.jet.2015.11.002},
Journal = {Journal of Economic Theory},
Pages = {37-75},
Title = {Fiscal policy in debt constrained economies},
Url = {https://www.sciencedirect.com/science/article/pii/S0022053115001891},
Volume = {161},
Year = {2016}
}

Abstract. We study fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to overborrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises.

@article{Aguiar01112015,
author = {Aguiar, Mark and Amador, Manuel and Farhi, Emmanuel and Gopinath, Gita},
title = {Coordination and Crisis in Monetary Unions},
volume = {130},
number = {4},
pages = {1727-1779},
year = {2015},
doi = {10.1093/qje/qjv022},
URL = {https://qje.oxfordjournals.org/content/130/4/1727.abstract},
journal = {The Quarterly Journal of Economics}
}

Abstract. We propose a continuous time model to investigate the impact of inflation credibility on sovereign debt dynamics. At every point in time, an impatient government decides fiscal surplus and inflation, without commitment. Inflation is costly, but reduces the real value of outstanding nominal debt. In equilibrium, debt dynamics is the result of two opposing forces: (1) impatience and (2) the desire to conquer low inflation. A large increase in inflation credibility can trigger a process of debt accumulation. This rationalizes the sovereign debt booms that are often experienced by low inflation credibility countries upon joining a currency union.

@article{aguiar2014sovereign,
title={Sovereign Debt Booms in Monetary Unions},
author={Aguiar, Mark and Amador, Manuel and Farhi, Emmanuel and Gopinath, Gita},
journal={American Economic Review, Papers and Proceedings},
year={2014},
volume={104},
number={5}
}

@inbook{aguiar2014handbook,
title = {Sovereign Debt},
booktitle = {Handbook of International Economics Vol 4},
year = {2014},
publisher = {North-Holland},
pages = {647-87},
author = {Aguiar, Mark and Amador, Manuel}
}

Abstract. We consider a general representation of the delegation problem, with and without money burning, and provide sufficient and necessary conditions under which an interval allocation is optimal. We also apply our results to the theory of trade agreements among privately informed governments. For both perfect and monopolistic competition settings, we provide conditions under which tariff caps are optimal.

@article{amador2013theory,
title={The Theory of Optimal Delegation with an Application to Tariff Caps},
author={Amador, Manuel and Bagwell, Kyle},
journal={Econometrica},
volume={81},
number={4},
pages={1541--1599},
year={2013}
}

@article{amador2012tariff,
title={Tariff Revenue and Tariff Caps},
author={Amador, Manuel and Bagwell, Kyle},
journal={American Economic Review: Papers and Proceedings},
volume={102},
number={3},
pages={459--465},
year={2012},
publisher={American Economic Association}
}

Abstract. We study the diffusion of dispersed private information in a large economy, where agents learn from the actions of others through two channels: a public channel, such as equilibrium market prices, and a private channel, for example local interactions. We show that, when agents learn only from the public channel, an initial release of public information increases agents’ total knowledge at all times and increases welfare. When a private learning channel is present, this result is reversed: more initial public information reduces agents asymptotic knowledge by an amount in order of log(t) units of precision. When agents are sufficiently patient, this reduces welfare.

@article{amador2012learning,
title={Learning from Private and Public Observations of Others Actions},
author={Amador, Manuel and Weill, Pierre-Olivier},
journal={Journal of Economic Theory},
volume={147},
number={3},
pages={910--940},
year={2012},
publisher={Elsevier}
}

Abstract. We propose a tractable variant of the open economy neoclassical growth model that emphasizes political economy and contracting frictions. The political economy frictions involve a preference for immediate spending, while the contracting friction is a lack of commitment regarding foreign debt and expropriation. We show that the political economy frictions slow an economy’s convergence to the steady state due to the endogenous evolution of capital taxation. The model rationalizes why openness has different implications for growth depending on the political environment, why institutions such as the treatment of capital income evolve over time, why governments in countries that grow rapidly accumulate net foreign assets rather than liabilities, and why foreign aid may not affect growth.

@article{aguiar2011growth,
title={Growth in the Shadow of Expropriation},
author={Aguiar, Mark and Amador, Manuel},
journal={The Quarterly Journal of Economics},
volume={126},
number={2},
pages={651--697},
year={2011},
publisher={Oxford University Press}
}

Abstract. We study the effect of releasing public information about productivity or monetary shocks using a micro-founded macroeconomic model in which agents learn from the distribution of nominal prices. While a public release has the direct beneficial effect of providing new information, it also has the indirect adverse effect of reducing the informational efficiency of the price system. We show that the negative indirect effect can dominate. Thus, the public information release may increase uncertainty about the monetary shock and reduce welfare. We find that the optimal communication policy is always to release either all or none of the information.

@article{amador2010learning,
title={Learning from Prices: Public Communication and Welfare},
author={Amador, Manuel and Weill, Pierre-Olivier},
journal={Journal of Political Economy},
volume={118},
number={5},
pages={866--907},
year={2010},
publisher={University of Chicago Press}
}

@article{aguiar2009expropriation,
title={Expropriation Dynamics},
author={Aguiar, Mark and Amador, Manuel and Gopinath, Gita},
journal={The American Economic Review},
pages={473--479},
volume={99},
number={2},
year={2009},
publisher={JSTOR}
}

Abstract. We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk-averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy, and investment is distorted by more in recessions than in booms, amplifying the effect of shocks. The government's lack of commitment induces a negative correlation between investment and the stock of government debt, a "debt overhang" effect. Debt relief is never Pareto improving and cannot affect the long-run level of investment. Furthermore, restricting the government to a balanced budget can eliminate the cyclical distortion of investment.

@article{aguiar2009investment,
title={Investment Cycles and Sovereign Debt Overhang},
author={Aguiar, Mark and Amador, Manuel and Gopinath, Gita},
journal={Review of economic studies},
volume={76},
number={1},
pages={1--31},
year={2009},
publisher={Oxford University Press}
}

Abstract. We study the optimal trade-off between commitment and flexibility in a consumption–savings model. Individuals expect to receive relevant information regarding tastes and thus they value the flexibility provided by larger choice sets. On the other hand,they also expect to suffer from temptation, with or without self-control, and thus they value the commitment afforded by smaller choice sets. The optimal commitment problem we study is to find the best subset of the individual’s budget set. This problem leads to a principal–agent formulation. We find that imposing a minimum level of savings is always a feature of the solution. Necessary and sufficient conditions are derived for minimum-savings policies to completely characterize the solution. We also discuss other applications, such as the design of fiscal constitutions, the problem faced by a paternalist, and externalities.

@article{amador2006commitment,
title={Commitment vs. Flexibility},
author={Amador, Manuel and Werning, Ivan and Angeletos, George-Marios},
journal={Econometrica},
volume={74},
number={2},
pages={365--396},
year={2006}}