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Working Paper
Aggregate employment growth and the deconcentration of metropolitan employment
In this paper, the authors document that the disparity in employment densities across U.S. metropolitan areas has lessened substantially over the postwar period. To account for this deconcentration of metropolitan employment, the authors develop a system-of-cities model in which an increase in aggregate metropolitan employment causes congestion costs to increase faster for the more dense metro areas. A calibrated version of the model reveals that the (roughly) two-and-a-half-fold increase in postwar aggregate metropolitan employment implies, by itself, more deconcentration than actually ...
Working Paper
Maturity, indebtedness, and default risk
In this paper, the authors advance the theory and computation of Eaton-Gersovitz style models of sovereign debt by incorporating long-term debt and proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed and implementing a novel method of computing the equilibrium accurately. Using Argentina as a test case, they show that incorporating long-term debt allows the model to match the average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads and simultaneously ...
Working Paper
Endogenous Political Turnover and Fluctuations in Sovereign Default Risk
A sovereign default model in which the sovereign derives private benefits from public office and contests elections to stay in power is developed. The economy?s growth process is modeled as a Markov switching regime, which is shown to be a better description of the data for our set of emerging economies. In the model, consistent with evidence, the sovereign is less likely to be reelected if economic growth is weak. In the low-growth regime, there is higher probability of loss of private benefits due to turnover, which makes the sovereign behave more myopically. This growth-linked variation in ...
Working Paper
Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy
This paper is superseded by WP 15-15 <p>The authors construct a quantitative equilibrium model of the housing market in which an unanticipated increase in the supply of housing triggers default mortgages via its effect on house prices. The decline in house prices creates an incentive to increase the consumption of housing space, but leverage makes it costly for homeowners to sell their homes and buy bigger ones (they must absorb large capital losses). Instead, leveraged households find it advantageous to default and rent housing space. Since renters demand less housing space than homeowners, ...
Conference Paper
Inflation, financial markets and capital formation - commentary
Journal Article
Chapter 11 for Countries?
Sovereign default risk is rising, yet the system for dealing with it remains flawed. Satyajit Chatterjee explains why it might be time to revive a debt restructuring proposal the international community rejected in 2003.
Working Paper
Spinoffs and the market for ideas
We present a theory of spinoffs in which the key ingredient is the originator?s private information concerning the quality of his new idea. Because quality is privately observed, by the standard adverse-selection logic, the market can at best offer a price that reflects the average quality of ideas sold. This gives the holders of above-average-quality ideas the incentive to spin off. We show that only workers with very good ideas decide to spin off, while workers with mediocre ideas sell them. Entrepreneurs of existing firms pay a price for the ideas sold in the market that implies zero ...
Working Paper
A quantitative analysis of the u.s. housing and mortgage markets and the foreclosure crisis
We present a model of long-duration collateralized debt with risk of default. Applied to the housing market, it can match the homeownership rate, the average foreclosure rate, and the lower tail of the distribution of home-equity ratios across homeowners prior to the recent crisis. We stress the role of favorable tax treatment of housing in matching these facts. We then use the model to account for the foreclosure crisis in terms of three shocks: overbuilding, financial frictions, and foreclosure delays. The financial friction shock accounts for much of the decline in house prices, while the ...
Journal Article
Inflation, financial markets and capital formation - commentary
Working Paper
Matching and learning in cities: urban density and the rate of invention
This paper examines the role local labor markets play in the production of innovations. The authors appeal to a labor market matching model ( la Berliant, Reed, and Wang 2004) to argue that in dense urban areas, workers are more selective in their matches and are therefore more productive. They find that, all else equal, patent intensity (patents per capita) is 20 percent higher in a metropolitan area with an employment density (jobs per square mile) twice that of another metropolitan area. Since local employment density doubles nearly four times across their sample, the implied gains in ...