Martin M. Guzman

Columbia University Business School
Economics Division
Uris Hall Room 126
3022 Broadway
New York, NY 10027

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliations: Columbia University and University of Buenos Aires (IIEP-BAIRES)

NBER Working Papers and Publications

June 2020Towards a Dynamic Disequilibrium Theory with Randomness
with Joseph E. Stiglitz: w27453
Most macroeconomic crises, such as the 2008 Global Financial Crisis, are associated with endogenous large changes in beliefs and understandings about the workings of the economy. Such downturns and crises are not consistent with the standard paradigm of a well-functioning competitive economy, and macroeconomic equilibrium models based on that paradigm have failed to predict the possibility of those downturns, to explain them, or even to design appropriate policy responses. The framework assumes there are no macroeconomic inconsistencies—all plans are realized, all budget constraints honored. In this paper, we present a dynamic disequilibrium theory with randomness that is based on the premise that a better way to understand deep downturns is to think of the economy experiencing a constan...
November 2018An Analysis of Puerto Rico's Debt Relief Needs to Restore Debt Sustainability
with Pablo A. Gluzmann, Joseph E. Stiglitz: w25256
This paper makes two contributions. First, we examine the macroeconomic implications of Puerto Rico’s Fiscal Plan that was 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 restructuring needs. We detect a number of flawed assumptions in the Fiscal Plan that lead to an underestimation of its contractionary effects on the island’s economic activity. We conduct a sensitivity analysis of the expected macroeconomic dynamics implied by the plan that allows us to construct more realistic scenarios of Puerto Rico’s debt restructuring needs. We show that the island’s current debt position is unsustainable, and com...
September 2017Real Exchange Rate Policies for Economic Development
with José Antonio Ocampo, Joseph E. Stiglitz: w23868
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 these sectors leads to overall faster economic growth. A system of effectively multiple exchange rates is required when spillovers across different tradable sectors differ. The impact of RER policies is increased when they are complemented by traditional industrial policies that increase the elasticity of the aggregate supply to the RER. Among the instruments required to implement a stable and competitive RER are interventions in the foreign exchan...

Published: Martin Guzman & Jose Antonio Ocampo & Joseph E. Stiglitz, 2018. "Real exchange rate policies for economic development," World Development, vol 110, pages 51-62. citation courtesy of

November 2016Pseudo-wealth and Consumption Fluctuations
with Joseph E. Stiglitz: w22838
This paper provides an explanation for situations in which the 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 heterogeneous beliefs and expectations of gains in a bet. This wealth is divorced from real assets that may exist in society. The creation of a market for bets will imply positive pseudo-wealth. Changes in the differences of prior beliefs will lead to changes in expected wealth and hence to changes in consumption, implying ex-post intertemporal individual and aggregate consumption misallocations and instabilities. Thus, in the environment we describe, completing markets increases macroeconomic volatility, raising unsettling welfar...
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