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Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. Our work provides such an explanation. We do not rely on frictions, market incompleteness or transactions costs of any kind. Instead, we modify a simple stochastic representative agent model by allowing for(More)
a r t i c l e i n f o a b s t r a c t JEL classification: E21 D91 Keywords: Life cycle Incomplete markets Wealth distribution Simulated method of moments We use all available waves of the Survey of Consumer Finances to document the evolution of the wealth distribution in the US since the 1980s. Relying on the shape of this distribution we then estimate a(More)
This paper studies optimal dynamic investment and …nancial policy of the …rm, if the interest rate on the …rm's debt depends on its capital structure. We characterize the optimal investment and …nancing decisions and show how the incentive to invest and the market value of the …rm are a¤ected by …nancial considerations. Conditions are derived under which(More)
We show how realistic occasionally binding collateral constraints cause macroeconomic fluctuations in a representative-agent model. Collateral constraints imply that the effect of choices on the price of collateral feeds back into the set of feasible choices, thus giving rise to multiple equilib-ria. We characterize how the possibility of multiple(More)
We use a heterogeneous-agent model, in which labor income is risky and markets are incomplete, to analyze consumer debt portfolios of secured and unsecured debt in the US. Compared with previous research, we emphasize the role of durables which not only generate utility but also serve as debt collateral. This allows a meaningful joint analysis of secured(More)
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