In this paper we construct a model of stock market, interest rate and output interaction which is a generalization of the well known 1981 model of Blanchard. We allow for imperfect substitutability between stocks and bonds in the asset market and for lagged portfolio adjustment. The reaction of...

In this paper we construct a model of stock market, interest rate and output interaction which is a generalization of the well known 1981 model of Blanchard. We allow for imperfect substitutability between stocks and bonds in the asset market and for lagged portfolio adjustment. The reaction of...

In this paper we construct a model of stock market, interest rate and output interaction which is a generalization of the well known 1981 model of Blanchard. We allow for imperfect substitutability between stocks and bonds in the asset market and for lagged portfolio adjustment. The reaction of...

Assumptions about the dynamic and distributional behavior of risk factors are crucial for the construction of optimal portfolios and for risk assessment. Although asset returns are generally characterized by conditionally varying volatilities and fat tails, the normal distribution with constant...

After the financial market meltdown of the years 2007–2008 the Obama administration responded with large fiscal stimulus package, yet the reaction to this stimulus has been diverse. Some predicted a multiplier effect in the order of 1.5, others argued that the multiplier will be less than 0.5....

We introduce a dynamic banking-macro model, which abstains from conventional mean-reversion assumptions and in which—similar to Brunnermeier and Sannikov (2010)—adverse asset-price movements and their impact on risk premia and credit spreads can induce instabilities in the banking sector. To...