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Fire Sales in a Model of Complexity
We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditionsExpand
A Welfare Criterion for Models with Distorted Beliefs
This paper proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs. Instead of taking a stand on whose belief is correct, our criterion asserts that anExpand
Belief Disagreements and Collateral Constraints
Belief disagreements have been suggested as a major contributing factor to the recent financial crisis. This paper theoretically evaluates this hypothesis. I assume that optimists have limited wealthExpand
Liquidity Trap and Excessive Leverage
We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interestExpand
Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading
A 'folk theorem' originating, among others, in the work of Stiglitz maintains that competitive equilibria are always or 'generically' inefficient (unless contracts directly specify consumption levelsExpand
Liquidity Trap and Excessive Leverage
We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interestExpand
Complexity and Financial Panics
During extreme financial crises, all of a sudden, the financial world that was once rife with profit opportunities for financial institutions (banks, for short) becomes exceedingly complex. ConfusionExpand
Investment Hangover and the Great Recession
We present a model of investment hangover motivated by the Great Recession. Overbuilding of durable capital such as housing requires a reallocation of productive resources to other sectors, which isExpand
Speculation and Risk Sharing with New Financial Assets
While the traditional view of financial innovation emphasizes the risk sharing role of new financial assets, belief disagreements about these assets naturally lead to speculation, which represents aExpand
A Risk-Centric Model of Demand Recessions and Speculation
We provide a continuous-time “risk-centric” representation of the New Keynesian model, which we use to analyze the interactions between asset prices, financial speculation, and macro- economicExpand
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