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Journal Article
The Real Term Premium in a Stationary Economy with Segmented Asset Markets
This article proposes a general equilibrium model to explain the positive and sizable term premia implied by the data. The authors introduce a slow mean-reverting process of consumption growth and a segmented asset-market mechanism with heterogeneous trading technologies into an otherwise standard heterogeneous agent general equilibrium model. First, the slow mean-reverting consumption growth process implies that the expected consumption growth rate is only slightly countercyclical and the process can exhibit near-zero first-order autocorrelation, as observed in the data. This slight ...
Working Paper
Time-Inconsistent Optimal Quantity of Debt
A key property of the Aiyagari-type heterogeneous-agent models is that the equilibrium interest rate of public debt lies below the time discount rate. This fundamental property, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent because the forward-looking planner would have a dominate incentive to issue plenty of debt, such that all households are fully self-insured against idiosyncratic risk whenever the interest rate of government borrowing is lower than the household time discount rate. But such a full self-insurance allocation may be paradoxical because, to ...
Journal Article
Filling the Tank on Fridays May Be a Bad Idea for St. Louisans
Gas prices in St. Louis can jump 10 percent overnight.
Journal Article
How Bad Can It Be? The Relationship between GDP Growth and the Unemployment Rate
Sectors most likely to be heavily impacted by the COVID-19 pandemic amount to 70 percent of GDP.
Breaking Down the Contributors to High Inflation
Sharp increases in prices of durable and nondurable goods have been behind the recent rise in U.S. inflation.
Journal Article
Better than Ever? The Wealth of Retired Households
Despite rising wealth inequality, most retired households in 2016 were wealthier than those in 1989.
Working Paper
Optimal Fiscal Policies under Market Failures
The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (modified golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital may be over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in ...
Journal Article
The Wage Bills of COVID-19
The largest potential wage loss comes from the health care and social assistance industry.
Journal Article
Convergence to Rational Expectations in Learning Models: A Note of Caution
We show in a simple monetary model that the learning dynamics do not converge to the rational expectations monetary steady state. We then show it is necessary to restrict the learning rule to obtain convergence. We derive an upper bound on the gain parameter in the learning rule, based on economic fundamentals in the monetary model, such that gain parameters above the upper bound would imply that the learning dynamics would diverge from the rational expectations monetary steady state.
What Does History Reveal about Reducing the National Debt Burden?
A look at the U.S. national debt since World War II reveals that economic growth and fiscal austerity (i.e., spending cuts and raising taxes) are two of the ways to reduce the debt burden.