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Chari, V. V.

Overview
Works: 58 works in 376 publications in 1 language and 2,295 library holdings
Genres: History 
Classifications: HB1, 330.072
Publication Timeline
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Publications about V. V Chari
Publications by V. V Chari
Most widely held works by V. V Chari
Can sticky price models generate volatile and persistent real exchange rates? by V. V Chari( Book )
25 editions published between 1996 and 2002 in English and held by 132 libraries worldwide
The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can account for some of the observed properties of real exchange rates. When prices are held fixed for at least one year, risk aversion is high and preferences are separable in leisure, the model generates real exchange rates that are as volatile as in the data. The model also generates real exchange rates that are persistent, but less so than in the data. If monetary shocks are correlated across countries, then the comovements in aggregates across countries are broadly consistent with those in the data. Making asset markets incomplete or introducing sticky wages does not measurably change the results
Business cycle accounting by V. V Chari( Book )
20 editions published between 2003 and 2006 in English and held by 123 libraries worldwide
"We propose and demonstrate a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models are equivalent to a prototype growth model with time-varying wedges that resemble time-varying productivity, labor taxes, and capital income taxes. We use data to measure these wedges, called efficiency, labor, and investment wedges, and then feed their measured values back into the model. We assess the fraction of fluctuations in output, employment, and investment accounted for by these wedges during the Great Depression and the 1982 recession. For the Depression, the efficiency and labor wedges together account for essentially all of the fluctuations; investment wedges play no role. For the recession, the efficiency wedge plays the most important role; the other two, minor roles. These results are not sensitive to alternative measures of capital utilization or alternative labor supply elasticities"--National Bureau of Economic Research web site
Optimal fiscal and monetary policy by V. V Chari( Book )
21 editions published between 1991 and 1999 in English and Undetermined and held by 119 libraries worldwide
We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle. We find four substantive lessons for policymaking: Capital income taxes should be high initially and then roughly zero; tax rates on labor and consumption should be roughly constant; state-contingent taxes on assets should be used to provide insurance against adverse shocks; and monetary policy should be conducted so as to keep nominal interest rates close to zero. We begin optimal taxation in a static context. We then develop a general framework to analyze optimal fiscal policy. Finally, we analyze optimal monetary policy in three commonly used models of money: a cash-credit economy, a money-in-the-utility-function economy
Hot money by V. V Chari( Book )
14 editions published between 1997 and 2003 in English and held by 112 libraries worldwide
The conventional wisdom is that capital flows between developing countries and developed countries are more volatile than can be justified by fundamentals. In this paper we construct a simple model in which frictions in international financial markets in combination with standard debt-default problems lead to volatile capital flows. These flows act as tests of fire for borrowing countries. If a country survives this test, its reputation is enhanced and future capital flows become less volatile. Failing this test is associated with a loss of reputation and a decline in the amount of capital flows
Monetary shocks and real exchange rates in sticky price models of international business cycles by V. V Chari( Book )
16 editions published between 1996 and 1998 in English and held by 111 libraries worldwide
The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law of one price for traded goods. In the data, real and nominal exchange rates are about 6 times as volatile as relative price levels and they both are highly persistent, with serial correlations of 0.85 and 0.83, respectively. This paper develops a sticky price model with price discriminating monopolists, which produces deviations from the law of one price for traded goods. Our benchmark model, which has prices set for one quarter at a time and a unit consumption elasticity of money demand, does not come close to reproducing these observations. A model which has producers setting prices for 6 quarters at a time and a consumption elasticity of money demand of 0.27 does much better. In it real and nominal exchange rates are about 3 times as volatile as relative price levels and exchange rates are persistent, with serial correlations of 0.65 and 0.66, respectively
Sticky price models of the business cycle : can the contract multiplier solve the persistence problem? by V. V Chari( Book )
21 editions published between 1996 and 2000 in English and held by 106 libraries worldwide
The purpose of this paper is to construct a quantitative equilibrium model with price setting and use it to ask whether staggered price setting can generate persistent output fluctuations following monetary shocks. We construct a business cycle version of a standard sticky price model in which imperfectly competitive firms set nominal prices in a staggered fashion. We assume that prices are exogenously sticky for a short period of time. Persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices very much when they can do so. We find the amount of endogenous stickiness to be small. As a result, we find that such a model cannot generate persistent movements in output following monetary shocks
Expectation traps and discretion by V. V Chari( Book )
12 editions published in 1996 in English and held by 103 libraries worldwide
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy to exogenous shocks to be self-fulfilling. Among the many equilibria that are possible, some have good welfare properties. But others exhibit welfare-decreasing volatility in output and employment. We refer to the latter type of equilibria as expectation traps. In effect, our paper presents a new argument for commitment in monetary policy because commitment eliminates these bad equilibria. We show that full commitment is not necessary to achieve the best outcome, and that more limited forms of commitment suffice
The poverty of nations : a quantitative exploration by V. V Chari( Book )
10 editions published in 1996 in English and held by 98 libraries worldwide
We document regularities in the distribution of relative incomes and patterns of investment in countries and over time. We develop a quantitative version of the neoclassical growth model with a broad measure of capital in which investment decisions are affected by distortions. These distortions follow a stochastic process which is common to all countries. Our model generates a panel of outcomes which we compare to the data. In both the model and the data, there is greater mobility in relative incomes in the middle of the income distribution than at the extremes. The 10 fastest growing countries and the 10 slowest growing countries in the model have growth rates and investment-output ratios similar to those in the data. In both the model and the data, the miracle' countries have nonmonotonic investment-output ratios over time. The main quantitative discrepancy between the model and the data is that there is more persistence in growth rates of relative incomes in the model than in the data
Expectation traps and monetary policy by Stefania Albanesi( Book )
13 editions published between 2002 and 2003 in English and held by 95 libraries worldwide
Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show that, in a standard equilibrium model, absence of commitment leads to multiple equilibria, or expectation traps. In these traps, expectations of high or low inflation lead the public to take defensive actions which then make it optimal for the monetary authority to validate those expectations. We find support in cross-country evidence for key implications of the model
Inside money, outside money and short term interest rates by V. V Chari( Book )
10 editions published in 1995 in English and held by 93 libraries worldwide
This paper presents a quantitative general equilibrium model with multiple monetary aggregates. The framework incorporates a banking sector and distinguishes between M1, the monetary base, currency and various measures of reserves: total, excess and non borrowed. We use a variant of the model to analyze two sets of empirical facts. The first set of facts is that different monetary aggregates covary differently with short term nominal interest rates. Broad monetary aggregates like M1 and the monetary base covary positively with current and future values of short term interest rates. In contrast, the non borrowed reserves of banks covary negatively with current and future interest rates. Observations like this sign switch' lie at the core of recent debates about the effects of monetary policy actions on short term interest rates. According to our model, the sign switch occurs because movements in non borrowed reserves are dominated by exogenous shocks to monetary policy, while movements in the base and M1 are dominated by endogenous responses to non-policy shocks. The second set of facts that we consider is that broad monetary aggregates covary positively with output. We quantify the Friedman and Schwartz hypothesis that this covariation reflects the effects of exogenous shocks to monetary policy, and the hypothesis that they reflect the endogenous response of monetary aggregates to shocks in the private economy
Time inconsistency and free-riding in a monetary union by V. V Chari( Book )
12 editions published between 2002 and 2008 in English and held by 92 libraries worldwide
We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free- rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank regulation. The free-rider problem leads the union's members to pursue lax nonmonetary policies that induce the monetary authority to generate high inflation. The free-rider problem can be mitigated by imposing constraints on the nonmonetary policies, like unionwide rules on labor market policy, debt constraints on members' fiscal policy, and unionwide regulation of banks. When there is no time inconsistency problem, there is no free-rider problem, and constraints on nonmonetary policies are unnecessary and possibly harmful
Financial crises as herds : overturning the critiques by V. V Chari( Book )
11 editions published between 2000 and 2003 in English and held by 87 libraries worldwide
Financial crises are widely argued to be due to herd behavior. Yet recently developed models of herd behavior have been subjected to two critiques which seem to make them inapplicable to financial crises. Herds disappear from these models if two of their unappealing assumptions are modified: if their zero-one investment decisions are made continuous and if their investors are allowed to trade assets with market-determined prices. However, both critiques are overturned--herds reappear in these models--once another of their unappealing assumptions is modified: if, instead of moving in a prespecified order, investors can move whenever they choose
Optimal fiscal policy in a business cycle model by V. V Chari( Book )
11 editions published in 1993 in English and held by 85 libraries worldwide
This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium the ex ante tax rate on capital income is approximately zero. There is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation. Within this class the optimal ex post capital tax rates can range from being close to i.i.d. to being close to a random walk. The tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks and thus there is no presumption that optimal labor tax rates follow a random walk. The welfare gains from smoothing labor tax rates and making ex ante capital income tax rates zero are small and most of the welfare gains come from an initial period of high taxation on capital income
Optimality of the Friedman rule in economies with distorting taxes by V. V Chari( Book )
11 editions published in 1993 in English and held by 85 libraries worldwide
We find conditions for the Friedman rule to be optimal in three standard models of money. These conditions are homotheticity and separability assumptions on preferences similar to those in the public finance literature on optimal uniform commodity taxation. We show that there is no connection between our results and the result in the standard public finance literature that intermediate goods should not be taxed
On the desirability of fiscal constraints in a monetary union by V. V Chari( Book )
10 editions published between 2003 and 2004 in English and held by 84 libraries worldwide
"The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsistency problem"--National Bureau of Economic Research web site
Sudden stops and output drops by V. V Chari( Book )
9 editions published between 2004 and 2005 in English and held by 78 libraries worldwide
"In recent financial crises and in recent theoretical studies of them, abrupt declines in capital inflows, or sudden stops, have been linked with large drops in output. Do sudden stops cause output drops? No, according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country's collateral constraint on foreign borrowing. In this model, in fact, sudden stops lead to output increases, not decreases. An examination of the quantitative effects of a well-known sudden stop, in Mexico in the mid-1990s, confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone. To generate an output drop during a financial crisis, as other studies have done, the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop"--NBER website
How severe is the time inconsistency problem in monetary policy? by Stefania Albanesi( Book )
10 editions published between 2001 and 2003 in English and Undetermined and held by 68 libraries worldwide
We analyze two monetary economies - a cash-credit good model and a limited participation model. In our models, monetary policy is made by a benevolent policymaker who cannot commit to future policies. We define and analyze Markov equilibrium in these economies. We show that there is no time inconsistency problem for a wide range of parameter values
Modern macroeconomics in practice : how theory is shaping policy by V. V Chari( Book )
10 editions published in 2006 in English and held by 67 libraries worldwide
Theoretical advances in macroeconomics made in the last three decades have had a major influence on macroeconomic policy analysis. Moreover, over the last several decades, the United States and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests. The three key developments that have shaped macroeconomic policy analysis are the Lucas critique of policy evaluation due to Robert Lucas, the time inconsistency critique of discre-tionary policy due to Finn Kydland and Edward Prescott, and the development of quantitative dynamic stochastic general equilibrium models following Finn Kydland and Edward Prescott
Sophisticated monetary policies by Andrew Atkeson( Book )
16 editions published between 2008 and 2009 in English and held by 65 libraries worldwide
In standard approaches to monetary policy, interest rate rules often lead to indeterminacy. Sophisticated policies, which depend on the history of private actions and can differ on and off the equilibrium path, can eliminate indeterminacy and uniquely implement any desired competitive equilibrium. Two types of sophisticated policies illustrate our approach. Both use interest rates as the policy instrument along the equilibrium path. But when agents deviate from that path, the regime switches, in one example to money; in the other, to a hybrid rule. Both lead to unique implementation, while pure interest rate rules do not. We argue that adherence to the Taylor principle is neither necessary nor sufficient for unique implementation with pure interest rate rules but is sufficient with hybrid rules. Our results are robust to imperfect information and may provide a rationale for empirical work on monetary policy rules and determinacy
The heterogeneous state of modern macroeconomics a reply to Solow by V. V Chari( Book )
9 editions published in 2007 in English and held by 58 libraries worldwide
Robert Solow has criticized our 2006 Journal of Economic Perspectives essay describing "Modern Macroeconomics in Practice." Solow eloquently voices the commonly heard complaint that too much macroeconomic work today starts with a model with a single type of agent. We argue that modern macroeconomics may not end too far from where Solow prefers. He is also critical of how modern macroeconomists use data to construct models. Specifically, he seems to think that calibration is the only way that our models encounter data. To the contrary, we argue that modern macroeconomics uses a wide variety of empirical methods and that this big-tent approach has served macroeconomics well. Solow also questions our claim that modern macroeconomics is firmly grounded in economic theory. We disagree and explain why
 
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Associated Subjects
Accounting and price fluctuations Business cycles Business cycles--Econometric models Business cycles--Mathematical models Capital movements--Econometric models Capital movements--Mathematical models Consumer behavior Debts, External--Econometric models Debts, External--Mathematical models Default (Finance)--Econometric models Default (Finance)--Mathematical models Developing countries Economic development--Econometric models Economic policy--Econometric models Equilibrium (Economics) Equilibrium (Economics)--Econometric models Finance, Public--Econometric models Financial crises--Econometric models Financial crises--Mathematical models Fiscal policy--Econometric models Foreign exchange rates--Econometric models Income distribution--Econometric models Inflation (Finance) Inflation (Finance)--Econometric models Interest rates--Econometric models International finance International finance--Econometric models International finance--Mathematical models Investments, Foreign--Econometric models Investments, Foreign--Mathematical models Investments--Econometric models Investments--Mathematical models Macroeconomics Macroeconomics--Methodology Macroeconomics--Philosophy Mexico Monetary policy Monetary policy--Econometric models Monetary policy--Mathematical models Monetary unions Monetary unions--Econometric models Money supply--Econometric models Multiplier (Economics) Prices--Econometric models Prices--Mathematical models Production (Economic theory)--Econometric models Solow, Robert M Taxation--Econometric models Taxation--Mathematical models United States
Alternative Names
Chari, V. V.
Chari, Varadarajan
Languages
English (268)
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