In this paper, I examine the implications of collateral constraints in a production economy and demonstrate that collateral constraints may have a role to play in resolving two outstanding puzzles: the risk-free rate puzzle and the total factor productivity puzzle. The first puzzle, as noted by...

Evidence suggests that banks, like firms, face financial frictions when raising funds. In this paper, we develop a quantitative, monetary business cycle model in which agency problems affect both the relationship between banks and firms as well as that linking banks to their depositors. As a...

We study the optimal Mirrlees taxation problem in a dynamic economy with idiosyncratic (productivity or preference) shocks. In contrast to the standard approach, which implicitly assumes that the mechanism is operated by a benevolent planner with full commitment power, we assume that any...

I construct a heterogeneous agents economy that mimics the time-series behavior of the US earnings distribution from 1963 to 2003. Agents face aggregate and idiosyncratic shocks and accumulate real and financial assets. I estimate the shocks driving the model using data on income inequality, on...

This paper contributes to the literature comparing the relative performance of financial intermediaries and markets by studying an environment in which a trade-off between risk sharing and growth arises endogenously. Financial intermediaries provide insurance to households against a liquidity...

This paper studies the provision of incentives to reallocate capital when managers are reluctant to relinquish control and have private information about the productivity of assets under their control. We show that when managers get private benefits from running projects substantial bonuses are...

This paper compares wealth portfolios across countries. The household sector in the US and Canada owns much more financial wealth, and much less housing wealth, than the household sector in most of Europe. We address this fact using a calibrated two sector growth model with endogenous financial...

We propose a theory where capital market imperfections are at the origin of cross-country TFP differences. In our theory entrepreneurs have private information about the multifactor productivity of their technology. We study how the contracting environment, as described by the ability to enforce...

The paper presents a model of fiscal and monetary policy that evaluates the tradeoff between higher distortionary labor taxation and higher inflation in the resolution of fiscal crises. In the model government debt is domestically held and nominal. Data are presented to show that such debt is...