Narayana Kocherlakota

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The potential for rare economic disasters explains a lot of asset-pricing puzzles. I calibrate disaster probabilities from the twentieth century global history, especially the sharp contractions associated with World War I, the Great Depression, and World War II. The puzzles that can be explained include the high equity premium, low risk-free rate, and(More)
I thank Rao Aiyagari, John Campbell, Dean Corbae, John Heaton, Mark Huggett, Beth Ingram, John Kennan, Deborah Lucas, Barbara McCutcheon, Rajnish Mehra, Gene Savin, Steve Williamson, Kei-Mu Yi, and the referees for their input in preparing this manuscript. I thank Edward R. Allen III, Ravi Jagannathan, and Deborah Lucas for our many interesting and(More)
In this paper, I consider a dynamic economy in which a government needs to finance a stochastic process of purchases. The agents in the economy are privately informed about their skills, which evolve stochastically over time in an arbitrary fashion. I construct an optimal tax system that is restricted to be linear in an agent’s wealth but can be arbitrarily(More)
This paper uses scanner price data collected in retail stores to document that (i) although the average magnitude of price changes is large, a substantial number of price changes are small in absolute value; (ii) the distribution of non-zero price changes has fat tails; and (iii) stores tend to adjust prices of goods in narrow product categories(More)
This paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible (following Myerson [8], the standard definition of feasibility is adapted to take account of the lack of commitment). The environments feature either memory or money. Memory is defined as knowledge on the part of an agent of the(More)
Business cycles appear to be large, persistent, and asymmetric relative to the shocks hitting the economy. This observation suggests the existence of an asymmetric amplification and propagation mechanism, which transforms the shocks into the observed movements in aggregate output. This article demonstrates, in a small open economy, how credit constraints(More)
This paper analyzes the quantitative role of idiosyncratic uncertainty in an economy in which rational agents vote on hypothetical social security reforms. We find that the role of a pay-as-you-go social security system as a partial insurance and redistribution device significantly reduces political support for a transition to an economy with a fully funded(More)
A number of existing studies have concluded that risk sharing allocations supported by competitive, incomplete markets equilibria are quantitatively close to rst-best. Equilibrium asset prices in these models have been di cult to distinguish from those associated with a complete markets model, the counterfactual features of which have been widely(More)