We construct a two-country New Keynesian model in which US government debt has an advantage as a superior collateral asset in the balance sheets of banks. The model can account for the observed response of the US dollar and US bond returns to a global downturn, in particular when the downturn is...

"This paper analyzes the possibility and the consequences of rational bubbles in a dy- namic economy where financially constrained firms demand and supply liquidity. Bub- bles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of...

"We consider a dynamic Mirrlees economy in a life cycle context and study the op- timal insurance arrangement. Individual productivity evolves as a Markov process and is private information. We use a first order approach in discrete and continuous time and obtain novel theoretical and numerical...