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Zombie Lending and Depressed Restructuring in Japan
In this paper, we propose a bank-based explanation for the decade-long Japanese slowdown following the asset price collapse in the early 1990s. We start with the well-known observation that most
Collective Risk Management in a Flight to Quality Episode
We present a model of optimal intervention in a flight to quality episode. The reason for intervention stems from a collective bias in agents' expectations. Agents in the model make risk management
The Cleansing Effect of Recessions
This paper investigates the response of industries to cyclical variations in demand in the context of a vintage model of ?creative destruction.? Due to process and product innovation, production
International and Domestic Collateral Constraints in a Model of Emerging Market Crises
We build a model of emerging markets crises which features two types of collateral constraints. Firms in a domestic economy have limited borrowing capacity from international investors. They also
On the Sign of the Investment-Uncertainty Relationship
Understanding the effects of uncertainty over any decision variable has fascinated economists for a long time. Risk aversion and incomplete markets are likely to make the investment-uncertainty
Plant-Level Adjustment and Aggregate Investment Dynamics
THE EMPIRICAL INVESTMENT literature is full of disappointments. From time to time waves of new ideas challenge the aggregate investment equation, but these challenges are rarely successful, and
The Safety Trap
In this article, we provide a model of the macroeconomic implications of safe asset shortages. In particular, we discuss the emergence of a deflationary safety trap equilibrium with endogenous risk
Irreversibility and Aggregate Investment
Investment is often irreversible, in that installed capital has little or no value unless used in production. In the presence of ongoing uncertainty, an individual firm's irreversible investment
Target Zones and Realignments
Recent contributions emphasize that the presence of exchange-rate target zones has important effects on the within-band behavior of exchange rates when agents are forward-looking. The authors find