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Jel Classification:C61 

An anatomy of U.S. personal bankruptcy under Chapter 13

We build a structural model of Chapter 13 bankruptcy that captures salient features of personal bankruptcy under Chapter 13. We estimate our model using a novel data set that we construct from bankruptcy court dockets recorded in Delaware in 2001 and 2002. Our estimation results highlight the importance of debtor?s choice of repayment plan length for Chapter 13 outcomes under the restrictions imposed by the bankruptcy law. We use the estimated model to conduct policy experiments to evaluate the impact of more stringent provisions of Chapter 13 that impose additional restrictions on the length ...
Staff Reports , Paper 764

Working Paper
Endogenous Borrowing Constraints and Stagnation in Latin America

The Latin American debt crisis of the 1980's had a major and long lasting effect on per-capita consumption: its level in 2005 was not that different from that in 1980. This paper studies the long stagnation in per-capita consumption that followed the crisis, and its relationship with recessions and sovereign risk, using a small open economy real business cycle model with complete markets, endogenous borrowing limits (limited commitment), endogenous capital accumulation, and domestic productivity and international interest rate shocks. I find that the model does an excellent job at explaining ...
Working Papers , Paper 2014-37

Journal Article
Monetary Policy in an Oil-Exporting Economy

The sudden collapse of oil prices poses a challenge to inflation-targeting central banks in oil-exporting economies. In this article, the authors illustrate this challenge and conduct a quantitative assessment of the impact of changes in oil prices in a small open economy in which oil represents an important fraction of its exports. They build a monetary, three-sector, dynamic stochastic general equilibrium model and estimate it for the Colombian economy. They model the oil sector as an optimal resource extracting problem and show that in oil-exporting economies the macroeconomic effects vary ...
Review , Volume 98 , Issue 3 , Pages 239-61

Working Paper
Optimal Contracts with Reflection

In this paper, we show that whenever the agent's outside option is nonzero, the optimal contract in the continuous-time principal-agent model of Sannikov (2008) is reflective at the lower bound. This means the agent is never terminated or retired after poor performance. Instead, the agent is asked to put zero effort temporarily, which brings his continuation value up. The agent is then asked to resume effort, and the contract continues. We show that a nonzero agent's outside option arises endogenously if the agent is allowed to quit and find a new firm (after a random search time of finite ...
Working Paper , Paper 16-14

Working Paper
Contingent Debt and Performance Pricing in an Optimal Capital Structure Model with Financial Distress and Reorganization

Building on the trade-off between agency costs and monitoring costs, we develop a dynamic theory of optimal capital structure with financial distress and reorganization. Costly monitoring eliminates the agency friction and thus the risk of inefficient liquidation. Our key assumption is that monitoring cannot be applied instantaneously. Rather, transitions between agency and monitoring are subject to search frictions. In the optimal contract, the firm seeks a monitoring opportunity whenever it is financially distressed, i.e., when the risk of liquidation is high. If a monitoring opportunity ...
Working Paper , Paper 18-17

Working Paper
Efficient Computation with Taste Shocks

Taste shocks result in nondegenerate choice probabilities, smooth policy functions, continuous demand correspondences, and reduced computational errors. They also cause significant computational cost when the number of choices is large. However, I show that, in many economic models, a numerically equivalent approximation may be obtained extremely efficiently. If the objective function has increasing differences (a condition closely tied to policy function monotonicity) or is concave in a discrete sense, the proposed algorithms are O(n log n) for n states and n choice--a drastic improvement ...
Working Paper , Paper 19-15

Working Paper
Risk Premia at the ZLB: A Macroeconomic Interpretation

Historically, inflation is negatively correlated with stock returns, leading investors to fear inflation. We document using a variety of measures that this association became positive in the U.S. during the 2008-2015 period. We then show how an off-the-shelf New Keynesian model can reproduce this change of association due to the binding zero lower bound (ZLB) on short-term nominal interest rates during this period: in the model, demand shocks become more important when the ZLB binds because the central bank cannot respond as effectively as when interest rates are positive. This changing ...
Working Paper Series , Paper WP 2020-01

Working Paper
Does Smooth Ambiguity Matter for Asset Pricing?

We use the Bayesian method introduced by Gallant and McCulloch (2009) to estimate consumption-based asset pricing models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our structural estimation. Based on the market and aggregate consumption data, our estimation provides statistical support for asset pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning and time-varying volatility are preferred to the long-run risk model. We analyze asset pricing implications of the ...
International Finance Discussion Papers , Paper 1221

Working Paper
Housing Choices and Their Implications for Consumption Heterogeneity

International Finance Discussion Papers , Paper 1249

Working Paper
Measuring Ambiguity Aversion

We confront the generalized recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) with data using Bayesian methods introduced by Gallant and McCulloch (2009) to close two existing gaps in the literature. First, we use macroeconomic and financial data to estimate the size of ambiguity aversion as well as other structural parameters in a representative-agent consumption-based asset pricing model. Second, we use estimated structural parameters to investigate asset pricing implications of ambiguity aversion. Our structural parameter estimates are ...
Finance and Economics Discussion Series , Paper 2015-105


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