We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle.
This paper addresses a long-standing problem in the optimal Ramsey capital taxation literature. The tractability of our model enables us to solve the Ramsey problem analytically along the entire transitional path. We show that the conventional wisdom on Ramsey tax policy and its underlying intuition and rationales do not hold in our model and may thus be misrepresented in the literature.
The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-specific fiscal policy. Analysis can be further complicated if high levels of public debt affect the performance of stabilization policy.
A dynamic stochastic occupational choice model with heterogeneous agents is developed to evaluate the impact of a corporate income tax reduction on employment. In this framework, the key margin is the endogenous entrepreneurial choice of the legal form of organization (LFO).
We use intraday data to estimate the daily foreign exchange exposure of U.S. multinationals and show that macroeconomic news affects these firms’ foreign exchange exposure. News creates a substantial shift in the joint distribution of stock and exchange rate returns that has both a transitory and a persistent component.
A standard theoretical prediction is that average exports are independent of tariff rates when the underlying distribution of firm productivities is assumed to be the widely-used Pareto distribution. Assuming that the underlying distribution has no upper bound is undoubtedly inaccurate and produces theoretical results at odds with empirical results.
This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation’s defensive counterterrorism efforts, while transferring some of its attacks abroad.
We consider an overlapping generation framework with search and private information to study optimal taxation. Agents sequentially trade in markets that are characterized by different frictions and trading protocols.
We study the role of financial frictions and balance-sheet effects in accounting for the dynamics of aggregate exports in large devaluations. We investigate a small open economy with heterogeneous firms, where firms face financing constraints and debt can be denominated in foreign units.
This paper demonstrates how adding nominal wage rigidity to a standard sticky price model can create a mechanism by which increases in government spending cause increases in consumption. The increase in output arising from government purchases puts upward pressure on the price level.
We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation. We examine transition paths for 93 countries following a permanent, uniform, unanticipated trade liberalization.
This paper studies the role of international trade delivery lags and variation in the intertemporal
marginal rate of substitution in accounting for puzzling features of cyclical fluctuations of
international trade volumes.
What is the prescription of Ramsey capital taxes for Aiyagari’s (1994) incomplete-markets
economy in the steady state? Departing from the endogenous setting in Aiyagari (1995), this
paper answers the question by considering an exogenous stream of government purchases
as in the canonical Ramsey problem.
This paper presents a theoretical model (adapted from the structural gravity model
by Anderson and van Wincoop, 2003) to capture the effects of terrorism on air passenger traffic
between nations affected by terrorism.
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates today forecast future booms in GDP, consumption, investment, and employment.