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Efficiency, equilibrium, and asset pricing with risk of default
We introduce a new equilibrium concept and study its efficiency and asset pricing implications for the environment analyzed by Kehoe and Levine (1993) and Kocherlakota (1996). Our equilibrium conceptExpand
Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth
We derive a lower bound for the volatility of the permanent component of investors' marginal utility of wealth or, more generally, asset pricing kernels. The bound is based on return properties ofExpand
A Simple Planning Problem for COVID-19 Lockdown
We study the optimal lockdown policy for a planner who controls the fatalities of a pandemic while minimizing the output costs of the lockdown. The policy depends on the fraction of infected andExpand
Optimal Price Setting with Observation and Menu Costs
We study the price setting problem of a firm in the presence of both observation and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of itsExpand
Quantitative Asset Pricing Implications of Endogenous Solvency Constraints
We study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We present a simple example for which efficientExpand
Money, Interest Rates, and Exchange Rates with Endogenously Segmented Markets
We analyze the effects of money injections on interest rates and exchange rates when agents must pay a Baumol‐Tobin‐style fixed cost to exchange bonds and money. Asset markets are endogenouslyExpand
Financial Innovation and the Transactions Demand for Cash
We document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives. We extend the Baumol-Tobin cashExpand
Dynamic Programming with Homogeneous Functions
Abstract We show that the basic existence, uniqueness, and convergence results of dynamic programming hold when the return function is homogeneous of degreeθ⩽1 and the constraints are homogeneous ofExpand
Time-varying risk, interest rates, and exchange rates in general equilibrium
Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediateExpand
Interest rates and inflation
A consensus has emerged among practitioners that the instrument of monetary policy ought to be the short-term interest rate, that policy should be focused on the control of inflation, and thatExpand