Martin Guzman

Columbia University | CU · Division of Finance and Economics

This paper provides an explanation for situations in which the fundamental state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth—individuals’ perceived wealth that is derived from expectations of gains in bets arising from heterogeneous expectations. Thi...

This chapter provides a critical overview of the steps and measures taken by the United Nations and other multilateral organizations and actors to resolve chronic sovereign indebtedness and contrasts these with private practices that distort any multilateral outcomes, chiefly vulture funds and holdout creditors. These practices are further reinforc...

This paper analyzes the role of real exchange rate (RER) policies in promoting economic development. Markets provide a suboptimal amount of investment in sectors characterized by learning spillovers. We show that a stable and competitive RER policy may correct for this externality and other related market failures. The resulting development of thes...

Puerto Rico's economy has been suffering a recession for more than a decade. The recession has led to a debt and economic crisis. The lack of opportunities has resulted in migration outflows that affect the lives of thousands of families and leave a higher burden on those who stay. Overall, the current macroeconomic dynamics is destabilizing the li...

This paper makes two contributions. First, we examine the macroeconomic implications of Puerto Rico’s Fiscal Plan certified in March 2017 for fiscal years 2017–18 to 2026–27. Second, we perform a Debt Sustainability Analysis (DSA) that incorporates the expected macroeconomic dynamics implied by the Fiscal Plan in order to compute Puerto Rico’s debt...

This paper provides a novel approach for assessing the robustness of the relationship between di erent types of nancial reforms and banking crises for the period 1973-2005. We document the following facts for emerging economies: (i) liberalizations of capital accounts, securities markets, interest rates, removal of credit controls, barriers to entr...

Recent controversies surrounding sovereign debt restructurings show the weaknesses of the current market-based system in achieving efficient and fair solutions to sovereign debt crises. This article reviews the existing problems and proposes solutions. It argues that improvements in the language of contracts, although beneficial, cannot provide a c...

Sovereign debt crises are becoming, once again, frequent. In some cases, the costs to the citizens of those countries facing such crises have been enormous. Deficiencies in the mechanisms for resolving such crises cast a pallor over countries that are not yet in a crisis but worry that they might become so; and indeed, the high costs and uncertaint...

This paper reviews the IMF DSA (Debt Sustainability Analysis) framework. We first examine the concept of debt sustainability, and argue that the evaluation exercise necessarily entails putting into question market expectations embodied in yield spreads. When the views of the analyst on the capacity of debt repayment differ from the ones reflected i...

Expectations matter. Many economic and financial decisions depend on the perception of future incomes and prices. The evolution of expectations, and how correct they are over time, determines the stability of the system.

Recent events in the US and Europe have witnessed the limitations of conventional macroeconomic models to predict and explain large economic recessions and crises, and to provide guidance for policies that attempt to resolve them.

This paper analyzes what assumptions on formation of expectations are consistent with Minsky’s Financial Instability Hypothesis (FIH) and its corollaries. The FIH establishes that financial relations evolve over time turning a stable system into an unstable one. Financial crises would be more likely to occur, and more severe if they occur, the lo...

We show that the severity of banking and debt crises is negatively re-lated to the volatility of GDP growth expectations. Series of expectations are built by using a stochastic-gain learning algorithm whose predictions match survey data on output growth expectations well. We construct sev-eral measures of severity of crises that capture output grow...

This paper provides an explanation of how the implementation of particular types of monetary policy and financial regulation affects economic development through its effects on macroeconomic stability. Firstly, we focus on the problems associated to the definition of reaction functions for the execution of monetary policy. Secondly, we analyze the...

In this paper we analyze empirically the relationship between different financial reforms and financial instability. We also analyze the relationship between financial liberalization and financial instability, where financial liberalization is measure as an aggregate of different financial reforms. Using data from Laeven and Valencia (2008) on bank...

En este trabajo analizamos la relación entre innovación financiera e inestabilidad financiera, utilizando a la liberalización del sistema financiero como una medida de innovación. Nuestra hipótesis es que una innovación financiera que cambia la configuración del sistema financiero toma al pasado obsoleto como guía para identificar tendencias futura...