Search Results
Journal Article
Can trade links transmit a European crisis?
A GIIPS crisis wouldn't have too strong an effect on the U.S. economy, but an EU-wide crisis may be a serious concern.
Journal Article
Searching for the financial accelerator: how credit affects the business cycle
Firms started repaying their debts during 2008-2009, and they did so while simultaneously accumulating highly liquid assets. These two observations are puzzling if one believes firms are purportedly starving for credit but cannot obtain it.
Journal Article
The effects of wealth bubbles on consumption
Changes in wealth, according to our simple calculations, can account for almost all of the observed consumption fluctuations of the past two decades.
Journal Article
\\"Frictions in financial and labor markets\\": a summary of the 35th Annual Economic Policy Conference
This article contains synopses of the papers presented at the 35th Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis held October 21-22, 2010. The conference theme was ?Frictions in Financial and Labor Markets.? Leading participants in this field presented their research and commentary.
Working Paper
Optimal monetary and fiscal policies in a search theoretic model of monetary exchange
In this paper we study optimal monetary and fiscal policies, and the welfare costs of inflation, within the Lagos and Wright (2005) framework. Monetary equilibria may be inefficient without fiscal policy tools due to bargaining frictions. We show that subsidies in decentralized markets can be implemented to alleviate underproduction, while money is still essential. Deviations from the Friedman rule may be large, and having fiscal and monetary policies in place results in considerable welfare gains. When fiscal policies are held constant, the welfare costs of increasing inflation may be as ...
Working Paper
A macroeconomic analysis of obesity
This paper tries to understand the underlying causes of the rapid increase in obesity rates over recent decades. In particular, we propose a dynamic general equilibrium model to derive the quantitative implications of a decline in the relative (monetary and time) cost of food prepared away from home on the caloric intake of the average American adult over the last forty years. Two channels that lower this relative cost are considered. First, productivity improvements in the production of food prepared away from home. We and that this channel is qualitatively consistent with expenditure trends ...
Working Paper
Oil crisis, energy-saving technological change and the stock market crash of 1973-74
The market value of U.S. corporations was nearly halved following the oil crisis of October 1973. Real energy prices more than doubled by the end of the decade, increasing energy costs and spurring innovation in energy-saving technologies by corporations. This paper uses a neo-classical growth model to quantify the impact of the increase in energy prices on the market value of U.S. corporations. In the model, corporations adopt energy-saving technologies as a response to the energy price shock and the price of installed capital falls due to investment irreversibility. The model calibrated to ...
Working Paper
Numerical simulation of nonoptimal dynamic equilibrium models
In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based on a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to two growth models, an overlapping generations economy with money, and an asset pricing model with financial frictions.
Working Paper
Problems in the numerical simulation of models with heterogeneous agents and economic distortions
Our work has been concerned with the numerical simulation of dynamic economies with heterogeneous agents and economic distortions. Recent research has drawn attention to inherent difficulties in the computation of competitive equilibria for these economies: A continuous Markovian solution may fail to exist, and some commonly used numerical algorithms may not deliver accurate approximations. We consider a reliable algorithm set forth in Feng et al. (2009), and discuss problems related to the existence and computation of Markovian equilibria, as well as convergence and accuracy properties. We ...
Working Paper
What happened to the US stock market? Accounting for the last 50 years
The extreme volatility of stock market values has been the subject of a large body of literature. Previous research focused on the short run because of a widespread belief that, in the long run, the market reverts to well understood fundamentals. Our work suggests this belief should be questioned as well. First, we show actual dividends cannot account for the secular trends of stock market values. We then consider a more comprehensive measure of capital income. This measure displays large secular fluctuations that roughly coincide with changes in stock market trends. Under perfect foresight, ...