Self-fulfilling Debt Dilution Repository

This repository contains the source code for replicating the results in the paper:

Aguiar, Mark and Manuel Amador (2020): “Self-fulfilling Debt Dilution: Maturity and Multiplicity in Debt Models”.

The authors (Mark Aguiar and Manuel Amador) are grateful for the fantastic research assistance of Stelios Fourakis in writing and testing this code. All remaining errors are the responsibility of the authors.

Folder structure

The folder structure is as follows:

Code: contains all of the julia source code necessary for replication
Output: contains the output files from the simulations
- Figures: contains the generated figures
- Moments: contains the moments of each simulation
- Policies: contains the policies for each simulation
- Models/Savings: contains the model elements for a savings simulation
- Models/Borrowing: contains the model elements for a borrowing simulation

Running the code

The code is in Julia: https://julialang.org/

The main source file is ReplicateAll.jl. This script runs the simulations for both the borrowing and the saving equilibrium and generates the moments and figures.

WARNING: You'll need the following Julia packages installed:

Parameters,
SparseArrays,
SpecialFunctions,
LinearAlgebra,
Distributions,
QuadGK,
DelimitedFiles,
CSV,
PGFPlotsX

WARNING: Before running this script, make sure you have the appropriate directory structure shown above.

WARNING: Make sure that you allow Julia to use multiple threads:

https://docs.julialang.org/en/v1/manual/parallel-computing/

WARNING: For the figures, you need a working latex installation (see https://kristofferc.github.io/PGFPlotsX.jl/stable/). In case you do not have one, comment out the calls to makeFigures in the ReplicateAll.jl script in lines 57 and 70 before running the script.

To run the script

Open a terminal. Make sure that your working directory is Code. If not, change the working directory to the Code subdirectory. Start julia and use the following command at the julia REPL prompt:

julia> include("ReplicateAll.jl")

Other relevant files

Parameters.jl contains the parameters used for the simulations.

The figures shown in the paper are saved in the Output/Figures directory.

The moments used to construct the tables in the paper are saved in the Output/Moments directory. Each moments file contains two columns. The first represents the moments using the full sample. The second column represents the moments using excluding the disaster states. The moments are:

1. mean A' over Y no default: E[A'/(y+m)] when the country has been out of default long 
   enough and does not default today.

2. mean market value over Y: E[q(y,A')*A'/(y+m)] when the country has been out of default 
   long enough and does not default today.

3. mean A over Y no default: E[A/(y+m)] when the country has been out of default long 
   enough and does not default today.

4. mean A over Y: E[A/(y+m)] when the country has been out of default 
   long enough up until today.

5. def Rate: E[d] when the country has been out of default long enough 
   up until today.

6. mean Spread: E[(1+r(y,A'))^4-(1+r)^4] when the country has been out of 
   default long enough and does not default today.

7. vol Spread: SD[(1+r(y,A'))^4-(1+r)^4] when the country has been out of 
   default long enough and does not default today.

8. vol C over Y: SD[ln(c)]/SD[ln(y+m)] when the country has been out of 
   default long enough and does not default today.

9. vol TB: SD[(y+m-c)/(y+m)] when the country has been out of default long 
   enough and does not default today.

10. cor TB with Log Y: corr[(y+m-c)/(y+m),ln(y+m)] when the country has been out of 
    default long enough and does not default today.

11. cor Spread with Log Y: corr[(1+r(y,A'))^4-(1+r)^4,ln(y+m)] when the country has 
    been out of default long enough and does not default today.

12. cor Spread with A / Y: corr[(1+r(y,A'))^4-(1+r)^4,A'/(y+m)] when the country 
    has been out of default long enough and does not default today.

13. cor Spread with TB: corr[(1+r(y,A'))^4-(1+r)^4, (y+m-c)/(y+m) ] when the 
    country has been out of default long enough and does not default today.

NOTE: the code is written where A represents assets. The paper instead uses the convention and writes the relevant moments and figures using debt, b = -a. So the relevant moments need to change sign. Note also that A' represents end of period assets.

Timing

The code was tested in Amazon Web Services (AWS) using a c4.4xlarge linux instance with 16 virtual CPUs and approximately 32GB of RAM.

The main part of the code (the computation of the equilibria for the benchmark maturity of 1/20.0) ran under 1h40minutes. The entire code including the additional computations with 6 more maturities ran just under 17h.

mk1564 / Self_Fulfilling_Debt_Dilution_AER_2020