https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/rss Working Papers en {03BD366D-613A-4CF8-A167-C7053687895A} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/why-do-americans-no-longer-work-so-much-more-than-nonamericans In the 1990s, Americans used to work much more than non-Americans. Nowadays, about half of the gap in hours worked has reversed. To evaluate the convergence of working hours, we develop a tractable model of labor supply enriched with multiple sources of heterogeneity across individuals, an extensive margin of participation, multi-member households, and an elaborate system of taxes and benefits upon nonemployment. Using detailed measurements from micro-level and aggregate datasets, we identify model parameters and sources of heterogeneity across individuals for various countries. We run a horse race between competing explanations and find that U.S. hours per person declined after 2000 owing mainly to the rise of government health benefits provided to the non-employed. Non-U.S. countries have generous benefits for the non-employed, but this generosity has not changed as much over time as in the United States, and public health coverage does not depend on employment status or income levels. For these countries, the rise of labor supply is generally accounted for by a mix of factors, such as the rise of wages and the falling disutility of work.<br/> Wed, 25 Mar 2026 20:52:03 GMT {B9E08A32-F59E-41CF-B0D8-217862D2929D} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/a-theory-of-fear-of-floating Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as “fear of floating”. We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is an occasionally binding borrowing constraint linked to the exchange rate that introduces a feedback loop between aggregate demand and credit conditions. Contrary to the Mundellian paradigm, we show that a depreciation can be contractionary, and letting the exchange rate float can expose the economy to self-fulfilling crises.<br/> Thu, 18 Dec 2025 16:57:24 GMT {213D6843-A2C3-4A04-B38D-7B07C2566B6C} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/minimum-wages-and-labor-markets-in-the-twin-cities We present new evidence on the labor market effects of large and permanent minimum wage increases by examining the policy changes implemented by Minneapolis and announced by Saint Paul in 2018. Beginning with synthetic difference-in-differences methods, we find that the increase in the minimum wage substantially decreased employment in restaurants, retail, and health, even after accounting for potential confounding effects from the pandemic and civil unrest. Next, using variation in exposure to the minimum wage across establishments and workers within zip codes and industries of the Twin Cities, we find employment effects that are about half as large as those from the time series. We quantify an industry equilibrium model to rationalize our estimates and differentiate among competing economic mechanisms that determine how the minimum wage affects the labor market. Our model accounts quantitatively for the importance of reduced entry in generating a larger employment decline than implied by the cross-sectional estimates; for the employment decline from the announcement of a future minimum wage increase; and for the more negative employment effects of the minimum wage over time, relative to the size of the increase, and when the economy is in a recession.<br/> Mon, 24 Nov 2025 20:06:07 GMT {447A45E2-7B90-4BBF-99F5-A70BEFC04FBF} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/portfolio-choice-and-settlement-frictions-a-theory-of-endogenous-convenience-yields We study settlement frictions that arise from the need to finance negative balances through an over-the-counter (OTC) market. We derive a closed-form expression for the endogenous convenience yield and show how it can be incorporated into a canonical portfolio problem. Using this framework, we examine how shifts in settlement frictions affect liquidity premia, the volume of overnight funding, the dispersion of market rates, and optimal portfolio allocations. From a normative perspective, we show that in the competitive equilibrium, investors may either over- or under-invest in liquid assets; moreover, both higher risk aversion and tighter aggregate liquidity increase the likelihood of under-accumulation.<br/> Wed, 19 Nov 2025 22:36:59 GMT {C370C2AA-12C6-4604-8654-562BC20EE11B} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/3d-gains-from-trade I quantify gains from trade in a multi-country dynamic stochastic environment, including contributions from trade across states of the world and over time, as well as from trade within dates and states (3-D gains). For developing countries, which have volatile productivity, trade across states is an important source of gains. These are particularly large under complete markets, but even with balanced trade, endogenous risk sharing through the terms of trade contributes nontrivially to 3-D gains. Because developed countries’ productivity is less volatile, their 3-D gains are only modestly bigger than static gains, even under complete markets.<br/> Fri, 31 Oct 2025 13:24:32 GMT {C14E6E3C-80E1-4C2C-A5EA-765D9E267D68} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/global-flight-to-safety-business-cycles-and-the-dollar We estimate a two-country DSGE model with macroeconomic and financial data for the U.S. and the rest of the world. The model features time variation in agents’ preference for safe bonds with a global flight-to-safety (GFS) component biased toward dollar-denominated safe bonds. Our estimation produces two main findings. First, GFS shocks are the most important driver of international business cycles. Second, GFS shocks contribute to the resolution of exchange rate puzzles. Movements in the dollar are largely accounted for by the GFS and other fundamental shocks, whereas pure deviations from uncovered interest rate parity play a more limited role.<br/> Tue, 09 Sep 2025 16:54:23 GMT {4772D558-2B9F-48B4-9944-180A0724B07E} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-optimum-quantity-of-money-revisited This paper uses a simple general equilibrium model in which agents use money holdings to self insure to address the classic question: What is the optimal rate of change of the money supply? The standard answer to this question, provided by Friedman, Bewley, Townsend, and others, is that this rate is negative. Because any revenues from seigniorage in our model are redistributed in lump-sum form to agents and this redistribution improves insurance possibilities, we find that the optimal rate is sometimes positive. We also discuss the measurement of welfare gains or losses from inflation and their quantitative significance. <br/> Wed, 23 Jul 2025 18:14:38 GMT {E2F988D8-EF4A-4E0C-A857-CCFCFD74347B} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/a-stochastic-bubble-forest We consider an economy with overlapping generations of relatively patient consumers who live for two periods. There is within-cohort heterogeneity in old-age endowments that depends on an aggregate state. That state is independent and identically distributed across generations. We assume consumers in their old age cannot be forced to give up any real resources. A stationary equilibrium in which state-contingent claims can be sold against the collateral of a single safe bubble security is efficient. The same allocation is also an equilibrium outcome in an economy with a sufficient number of stochastic bubble securities that can be traded subject to collateral constraints. When consumers cannot sell any securities short at all, the same efficient allocation can be implemented with a stochastic bubble forest: a continuum of Lucas trees that bear no fruit, with prices that evolve stochastically. Dynamic spanning is a potential rationale for the existence of distinct bubble assets. Thu, 26 Jun 2025 20:29:05 GMT {156818CF-9D03-4014-BE2D-858F9A78B2E2} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-optimal-monetary-policy-response-to-tariffs What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model, characterizes the macroeconomic effects of tariffs, and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether terms of trade are exogenous or endogenous. When tariffs address other distortions, monetary policy remains expansionary, but the inflationary effects are mitigated. Mon, 23 Jun 2025 18:59:55 GMT {7A9DAF7A-CD83-4F9A-9D6D-8632503AF8EE} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/overborrowing-underborrowing-and-macroprudential-policy In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production structure and the policy instruments available to the planner. We argue that macroprudential policy is desirable regardless of whether the competitive equilibrium features more or less borrowing than the constrained-efficient equilibrium. In our quantitative analysis, macroprudential taxes on borrowing turn out to be larger when the government has access to ex-post stabilization policies.<br/> Thu, 29 May 2025 15:23:41 GMT {B80C9844-64AC-421E-8063-0E4AE2CA1A14} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-incredible-taylor-principle This note addresses the role of the Taylor principle to solve the indeterminacy of equilibria in economies in which the monetary authority follows an interest rate rule. We first study the role of imposing two additional ad-hoc restrictions on the definition of equilibrium. Imposing the equilibrium to be locally unique never delivers a unique outcome. Imposing the equilibrium to be bounded, renders the outcome unique only if the inflation target is the Friedman rule. Second, we show that the Taylor principle is strongly time inconsistent - in a sense we make very precise - and that policies that implement the Friedman rule are the only sustainable policies.<br/> Fri, 04 Apr 2025 15:53:40 GMT {96B766CA-1EC8-4C66-9839-01BF752E5652} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/human-capital-investment-and-the-inefficiency-of-compensation-based-on-marginal-productivity-the-static-case A simple extension of the traditional analysis of human capital accumulation is considered in a general equilibrium context. When real wages are equated to marginal products in the presence of human capital investment, resulting equilibria are almost never efficient even by very weak criteria. This is true even though labor is not a quasi-fixed factor, and informational asymmetries are excluded from the model. It is shown that human capital investment generates externalities, and has associated with it a “free-rider problem.” This, in turn, explains the common practice of employers requiring minimum levels of human capital accumulation for some employees, and refusing to hire “overqualified” workers for other positions. <br/> Thu, 20 Mar 2025 18:49:03 GMT {72C80B23-8B69-4A47-A158-167392E4298E} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/a-note-on-policy-economics-studies-and-the-neutrality-view Sat, 08 Mar 2025 03:24:03 GMT {FA835F53-58DE-44BB-B050-30203EC0D17D} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/two-illustrations-of-the-quantity-theory-of-money-reloaded In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. We conclude that the low-frequency behavior of these series maintains a close relationship, as predicted by standard quantity theory models. In an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver very different high-frequency dynamics. We argue that these relationships are useful for policy design aimed at controlling inflation.<br/> Tue, 25 Feb 2025 17:47:20 GMT {C8E903D2-D0E2-4058-A5A9-B18F3054E2B0} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/how-should-monetary-policy-respond-to-housing-inflation A persistent rise in rents has kept inflation above target in many advanced economies. Optimal policy in the standard New Keynesian (NK) model requires policy to stabilize housing inflation. We argue that the basic architecture of the NK model—that excess demand is always satisfied by producers—is inappropriate for the housing market, and we develop a matching framework that allows for demand rationing. Our findings indicate that the optimal response to a housing demand shock is to stabilize inflation in the non-housing sector while disregarding housing inflation. Our results hold exactly in a version of the model with costless search and quantitatively in a version with housing search costs calibrated to match US data on housing tenure, vacancy rates, and the size of the real estate sector.<br/> Mon, 28 Oct 2024 16:44:33 GMT {03B10D16-3122-485E-ACFA-50C1CA8A235D} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/unique-implementation-of-permanent-primary-deficits In an economy with incomplete markets and consumers who are sufficiently risk averse, we show that the government can uniquely implement a permanent primary deficit using nominal debt and continuous Markov strategies for primary deficits and payments to debtholders. But this result fails if there are also useless pieces of paper (bitcoin for short) that can be traded. If there is trade in bitcoin, then there is no continuous Markov strategy for the government that leads to unique implementation. Instead, there is a continuum of equilibria with distinct real allocations in which the price of bitcoin converges to zero. And there is a balanced budget trap: continuous government policies designed for a permanent primary deficit cannot eliminate an alternative steady state in which _r_ - _g_ = 0 and the government is forced to balance its budget. A legal prohibition against bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on bitcoin at the rate -(_r_ - _g_) > 0.<br/> Fri, 18 Oct 2024 15:51:15 GMT {0E5441D9-3D3B-43C2-9E3F-AE58C4833A56} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-macroeconomics-of-the-greek-depression Greece experienced a boom until 2007, followed by a collapse of unprecedented magnitude and persistence. We assess the sources of the boom and the bust, using a rich estimated dynamic general equilibrium model. External demand and government consumption fueled the boom in production, whereas transfers fueled the boom in consumption. Different from the standard narrative, wages and prices declined substantially during the bust. Tax policy accounts for the largest fraction of the bust in production, whereas uninsurable risk accounts for the bust in consumption and wages. We assess how the composition of fiscal adjustment and bailouts affected the crisis.<br/> Wed, 02 Oct 2024 18:44:30 GMT {4FEED366-FF56-40D2-A9F2-3AFCC37CE0E5} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/a-ramsey-theory-of-financial-distortions The interest rate on government debt is significantly lower than the rates of return on other assets. From the perspective of standard models of optimal taxation, this empirical fact is puzzling: typically, the government should finance expenditures either through contingent taxes, or by previously-issued state-contingent debt, or by labor taxes, with only minor effects arising from intertemporal distortions on interest rates. We study how this answer changes in an economy with financial frictions, where the government cannot directly redistribute towards the agents in need of liquidity, but has otherwise access to a complete set of linear tax instruments. We establish a stark result. Provided this is feasible, optimal policy calls for the government to increase its debt, up to the point at which it provides sufficient liquidity to avoid financial constraints. In this case, capital-income taxes are zero in the long run, and the returns on government debt and capital are equalized. However, if the fiscal space is insufficient, a wedge opens between the rate of return on government debt and capital. In this case, optimal long-run tax policy is driven by a trade-off between the desire to mitigate financial frictions by subsidizing capital and the incentive to exploit the quasi-rents accruing to producers of capital by taxing capital instead. This latter incentive magnifies the wedge between rates of return on publicly and privately-issued assets.<br/> Mon, 26 Aug 2024 15:57:09 GMT {1034A3F8-EC34-4C4F-B2C4-82EF6F314B4B} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/perspectives-on-the-labor-share As of 2022, the share of U.S. income accruing to labor is at its lowest level since the Great Depression. Updating previous studies with more recent observations, I document the continuing decline of the labor share for the United States, other countries, and various industries. I discuss how changes in technology and product, labor, and capital markets affect the trend of the labor share. I also examine its relationship with other macroeconomic trends, such as rising markups, higher concentration of economic activity, and globalization. I conclude by offering some perspectives on the economic and policy implications of the labor share decline.<br/> Mon, 05 Aug 2024 14:22:13 GMT {63D1DEAD-E7E8-4E22-B608-4919C70A79BF} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/default-and-interest-rate-shocks-renegotiation-matters We develop a sovereign default model with debt renegotiation in which interest-rate shocks affect default incentives through two mechanisms. The first mechanism, the standard mechanism, depends on how a higher interest rate tightens the government’s budget constraint. The second mechanism, the renegotiation mechanism, depends on how a higher rate increases lenders’ opportunity cost of holding delinquent debt, which makes lenders accept larger haircuts and makes default more attractive for the government. We use the model to study the 1982 Mexican default, which followed a large increase in U.S. interest rates. We argue that our novel renegotiation mechanism is key for reconciling standard sovereign default models with the narrative that U.S. monetary tightening triggered the crisis.<br/> Tue, 09 Jul 2024 21:18:41 GMT {997FB0A4-90E7-4169-B21B-81B37D11B607} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/reserve-accumulation-macroeconomic-stabilization-and-sovereign-risk In the past three decades, governments in emerging markets have accumulated large amounts of international reserves, especially those with fixed exchange rates. We propose a theory of reserve accumulation that can account for these facts. Using a model of endogenous sovereign default with nominal rigidities, we show that the interaction between sovereign risk and aggregate demand amplification generates a macroeconomic-stabilization hedging role for international reserves. Reserves increase debt sustainability to such an extent that financing reserves with debt accumulation may not lead to increases in spreads. We also study simple and implementable rules for reserve accumulation. Our findings suggest that a simple linear rule linked to spreads can achieve significant welfare gains, while those rules currently used in policy studies of reserve adequacy can be counterproductive.<br/> Fri, 05 Jul 2024 17:48:09 GMT {63B40BC8-5F5D-4794-9D5C-7A6B475F70F7} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/bank-runs-fragility-and-credit-easing We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors’ confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual bank depends on macroeconomic aggregates and how the number of banks facing a run affects macroeconomic aggregates in turn. In general equilibrium, runs can be partial or complete, depending on aggregate leverage and the dynamics of asset prices. Our normative analysis shows that the effectiveness of credit easing and its welfare implications depend on whether a financial crisis is driven by fundamentals or by self-fulfilling runs.<br/> Thu, 27 Jun 2024 14:34:28 GMT {47848256-9FA3-402C-A606-3637513D9857} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/self-fulfilling-debt-crises-with-long-stagnations We explore quantitatively the possibility of multiple equilibria in a model of sovereign debt crises. The source of multiplicity is the one identified by Calvo (1988). This type of multiplicity has been at the heart of the policy debate through the recent European sovereign debt crisis. Key for multiplicity in the model is a stochastic process for output featuring long periods of either high or low growth. We calibrate the output process in the model using data for the southern European countries that were exposed to the debt crisis. We find that expectations-driven sovereign debt crises are empirically plausible, but only in periods of stagnation. Multiplicity is state dependent: in periods of stagnation and for intermediate levels of debt, interest rates may be high for reasons unrelated to fundamentals.<br/> Tue, 18 Jun 2024 21:53:00 GMT {681444CE-72BC-4FF2-AAF3-E1A2C721C9AA} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-puzzling-behavior-of-spreads-during-covid Advanced economies borrowed substantially during the Covid recession to fund their fiscal policy. The Covid recession differed from the Great Recession in that sovereign debt markets remained calm and spreads barely responded. We study the experience of Greece, the most extreme manifestation of the puzzling behavior of spreads during Covid. We develop a small open economy model with long-term debt and default, which we augment with official lenders, heterogeneous households and sectors, and Covid constraints on labor supply and consumption demand. The model is quantitatively consistent with the observed boom-bust cycle of Greece before Covid and salient observations on macro aggregates, government debt, and the sovereign spread during Covid. The spread is stable despite a rise in external borrowing during Covid, because lockdowns were perceived as transitory and the bailouts of the 2010s had tilted the composition of debt at the beginning of Covid away from defaultable private debt. The ECB's policy of purchasing debt in secondary markets during Covid did not stabilize spreads so much, but allowed the government to provide transfers that reduced inequality.<br/> Fri, 17 May 2024 16:24:07 GMT {7E43E390-E05B-4CDE-BBD4-E70B0B57301D} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/international-reserve-management-under-rollover-crises This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads.<br/> Wed, 17 Apr 2024 17:08:56 GMT {752BCFA5-9EE8-4F77-BAAE-FBECD8F5B352} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/bank-runs-fragility-and-regulation We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when banks are vulnerable to runs, banks’ leverage decisions are not ex-ante optimal: individual banks do not internalize that higher leverage makes other banks more vulnerable. The theory calls for introducing minimum capital requirements, even in the absence of bailouts.<br/> Fri, 12 Apr 2024 15:25:42 GMT {2FEC814A-5CC4-4914-92A7-08CCB3404DA9} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/financial-integration-and-monetary-policy-coordination Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that determine whether the Nash equilibrium exhibits under-tightening or over-tightening: the output gap, sectoral differences in labor intensity, and the trade balance response to changes in nominal rates. Independently of the shocks hitting the economy, we find that under-tightening is possible during economic expansions or contractions. For large shocks, the gains from coordination can be substantial.<br/> Fri, 12 Apr 2024 15:12:36 GMT {FF52727E-F94B-4688-81D4-AC1883050158} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/the-global-distribution-of-college-graduate-quality We measure college graduate quality — the average human capital of a college’s graduates—using the average earnings of the college’s graduates adjusted to a common labor market. Our implementation uses the database of the website Glassdoor, which has the necessary information on earnings and education for non-migrants and migrants who graduate from roughly 3,300 colleges in 66 countries. Graduates of colleges in the richest countries have 50 percent more human capital than graduates of colleges in the poorest countries. Migration reinforces these differences. Poorer countries do not just lose a higher share of their skilled workers; their emigrants are highly positively selected on human capital. Finally, we show that these stocks and flows matter for growth and development by showing that college graduate quality predicts the share of a college’s students who become inventors, engage in entrepreneurship, and become top executives, both within and across countries.<br/> Thu, 22 Feb 2024 15:47:50 GMT {170C11B5-BCCE-4DC6-8D7D-E8426DCDF459} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/on-wars-sanctions-and-sovereign-default This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country.<br/> Thu, 21 Dec 2023 18:22:05 GMT {2D94BC15-666C-4FC9-ADF7-5F74F7701DC0} https://sc103-mplsfed-prod-cd.mac-p-sitecore-ase-6.appserviceenvironment.net/research/working-papers/benchmarking-global-optimizers We benchmark six global optimization algorithms by comparing their performance on challenging multidimensional test functions as well as on a method of simulated moments estimation of a panel data model of earnings dynamics. Five of the algorithms are from the popular NLopt open-source library: (i) Controlled Random Search with local mutation (CRS), (ii) Improved Stochastic Ranking Evolution Strategy (ISRES), (iii) Multi-Level Single-Linkage (MLSL), (iv) Stochastic Global Optimization (StoGo), and (v) Evolutionary Strategy with Cauchy distribution (ESCH). The sixth algorithm is TikTak, which is a multistart global optimization algorithm used in some recent economic applications. For completeness, we add three popular local algorithms to the comparison—the Nelder-Mead downhill simplex algorithm, the Derivative-Free Nonlinear Least Squares (DFNLS) algorithm, and a popular variant of the Davidon-Fletcher-Powell (DFPMIN) algorithm. To give a detailed comparison of algorithms, we use benchmarking tools recently developed in the optimization literature. We find that the success rate of many optimizers varies dramatically with the characteristics of each problem and the computational budget that is available. Overall, TikTak is the strongest performer both on the test functions and the economic application. The next-best performing optimizers are StoGo for the test functions and MLSL and ISRES for the economic application.<br/> Fri, 15 Dec 2023 20:37:56 GMT