Investors in option markets price in a substantial collective government bailout guarantee in the financial sector, which puts a floor on the equity value of the financial sector as a whole, but not on the value of the individual firms. The guarantee makes put options on the financial sector...

In this chapter, we review and discuss the large body of research that has developed over the past 10-plus years that explores the interconnection of macroeconomics, finance, and housing. We focus on three major topics—housing and the business cycle, housing and portfolio choice, and housing...

We discuss and reconcile the geological and economic/technological views concerning the future of world oil production and prices, and present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in...

The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and...

This paper analyzes the scope for rules-based countercyclical fiscal policy in small open economies where a subset of households is liquidity-constrained. Relative to balanced budget rules, structural surplus rules significantly improve welfare. But they minimize fiscal instrument volatility...

For thirty years, prominent voices have advocated a policy of starving the beast – cutting taxes to force government spending cuts. This paper analyzes the macroeconomic and welfare consequences of this policy using a two-country general equilibrium model. Under several strong assumptions, the...