Search Results
Working Paper
On the welfare gains of reducing the likelihood of economic crises
The authors seek to measure the potential benefit of reducing the likelihood of economic crises (defined as Depression-style collapses of economic activity). Based on the observed frequency of Depression-like events, they estimate this likelihood to be approximately one in every 83 years for the U.S. The welfare gain of reducing even this small probability of crisis to zero can range between 1.05 percent and 6.59 percent of annual consumption in perpetuity. These large gains occur because although the probability of entering a Depression-like state is small, once the state is entered it is ...
Conference Paper
Inflation, financial markets and capital formation - commentary
Journal Article
Inflation, financial markets and capital formation - commentary
Working Paper
A Quantitative Theory of the Credit Score
What is the role of credit scores in credit markets? We argue that it is a stand in for a market assessment of a person's unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person's type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both ...
Journal Article
A theory of asset price booms and busts and the uncertain return to innovation
Many observers believe that turbulence in asset prices results from bouts of optimism and pessimism among investors that have little to do with economic reality. While psychology and emotions are no doubt important motivators of human actions, an explanation for asset price booms and busts that ignores the fact that humans are also thinking animals does not seem entirely satisfactory or plausible. In this article, Satyajit Chatterjee presents a counterpoint to the view that ?it?s all psychology.? He reports on a theory of asset price booms and busts that is based entirely on rational ...
Journal Article
De-leveraging and the financial accelerator: how Wall Street can shock main street
The severity of the recent economic downturn raises questions about the role of financial markets in modern market economies. Why did rising defaults in a relatively small portion of the U.S. housing market cause a financial crisis? Why do financial crises have outsized adverse effects on the rest of the economy? As a general rule, a decline in economic activity in the nonfinancial sector, such as occurs during a typical recession, induces greater restraint on the part of the financial sector and that restraint - manifested usually in a pullback of credit and funding - in turn causes further ...
Journal Article
Ores and scores: two cases of how competition led to productivity \\"miracles.\\"
Although iron ore mining and public schools may seem to have nothing in common, you may be surprised. Recent research suggests that the labor productivity of ore producers and teachers may respond similarly to competitive pressure. To date, most macroeconomic research on the determinants of labor productivity has generally focused on variables such as capital stock per worker, technology, the quality of the workforce, and laws and regulations that govern production. However, this conventional view may leave something out: the degree of competitive pressure faced by a production unit. In ...
Journal Article
Taxes, homeownership, and the allocation of residential real estate risks
Home equity is the predominant form of savings for most Americans because it helps them save on taxes. However, homeownership also determines how the risks of fluctuations in the value of residential real estate are borne. In this article, Satyajit Chatterjee looks at how the tax benefit of homeownership has moved households toward undiversified investments in risky residential real estate by making it costly for them to rent their homes. He also points out the often overlooked risk-allocation consequences of proposed changes in the U.S. tax code.
Journal Article
Why does countercyclical monetary policy matter?
Satyajit Chatterjee outlines the mainstream view of the benefits of countercyclical monetary policy and the challenge posed to it by recent microfoundations-oriented research. He also considers how this challenge may alter our views about the benefits of countercyclical monetary policy.>