Real-business-cycle models suggest that an increase in the rate of productivity growth increases the real rate of interest. But economic theory is ambiguous when it comes to the effect of government budget deficits on the real rate of interest. Similarly, little is known about the effect of...

"Death of a Theory," presented in St. Louis. January 13, 2012.

"SNEAK PREVIEW: Death of a Theory." Presented at the Korea-America Economic Association, Chicago, Illinois. January 7, 2012.

We study an economy in which intermediaries have incentives to issue circulating liabilities as part of an equilibrium. We show that, with arbitrarily small transactions costs, only the liabilities of intermediaries will circulate, and not those of other private sector agents. Therefore, our...