Review

Bob Rasche was a champion of the St. Louis Fed. He devoted his energy and imagination to cultivating an environment of public service and rigorous economic research. Bob died June 2, 2016.

The financial crisis of 2007-09 and its aftermath turned monetary economics and policymaking on its head and called into question many of the conventional views held before the crisis. One of the most popular and enduring views in all of monetary economics since the 1970s, and indeed since the 1940s, has been that a nominal interest rate peg is poor monetary policy and that attempts to pursue such a policy would lead to ruin.

This article is based on the author’s Homer Jones Memorial Lecture delivered at the Federal Reserve Bank of St. Louis, April 6, 2016.

The authors study the roles of asset contractibility, market power, and rate of return differentials in dynamic insurance when the contracting parties have limited commitment. They define, characterize, and compute Markov-perfect risk-sharing contracts with bargaining.

While most college graduates eventually find jobs that match their qualifications, the possibility of long spells of unemployment and/or underemployment—combined with ensuing difficulties in repaying student loans—may limit and even dissuade productive investments in human capital. The author explores the optimal design of student loans when young college graduates can be unemployed and reaches three main conclusions.