This essay discusses the reasons for and implications of the decline in real interest rates around the world over the past several decades. It suggests that the decline in interest rates is largely explicable from trends in saving, growth, and markups. In this environment, greater government...

We apply ideas from fiscal federalism to reassess how fiscal authority should be delegated within a monetary union. In a real-economy model with no fiscal externalities, in which local fiscal authorities have an informational advantage about the preferences of their citizens for public spending...

Secured lenders have recently demanded a new condition in distressed debt restructurings: competing secured lenders must lose priority. We model the implications of this "creditor-on-creditor violence" trend. In our dynamic model, secured lenders enjoy higher priority in default. However,...

We build a model of optimal fixed-rate mortgage refinancing with fixed costs and inattention and derive a new sufficient statistic that can be used to measure inattention frictions from simple moments of the rate gap distribution. In the model, borrowers pay attention to rates sporadically so...

There are large cross-sectional differences in how often US borrowers refinance mortgages. In this paper, we develop an equilibrium mortgage pricing model with heterogeneous borrowers and use it to show that equilibrium forces imply important cross-subsidies from borrowers who rarely refinance...

This paper reviews the debt service ratio (DSR) as a theoretically well-grounded indicator of systemic risk. The DSR has the desirable feature that it fluctuates around a stable level which makes its early warning signals easy to understand and communicate. In contrast, current early warning...

The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers' interest burden and allows the government to run a...

Lucas and Stokey (1983) motivated future governments to confirm an optimal tax plan by rescheduling government debt appropriately. Debortoli et al. (2021) showed that sometimes that does not work. We show how a Ramsey plan can always be implemented by adding instantaneous debt to Lucas and...

We study the optimal design of corporate tax policy in a textbook life-cycle model featuring two key deviations: (i) firms are imperfectly competitive and (ii) households save by purchasing equity shares in a stock market. In this simple environment, the financial wealth of savers is equal to...

Sovereign borrowing during inflation surges is a litmus test of a government's ability to withstand and navigate macroeconomic shocks. Based on transaction-level bond issuance data, we explore how sovereign financing strategies respond to inflation surges and how policy practices affect their...