I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to over-invest and where shareholders are more willing to tolerate such a behavior in good times. The model successfully explains...

of moral hazard.

I propose a new implementation of the q-theory of investment using corporate bond yields instead of equity prices. In q-theory, the optimal investment rate is a function of risk-adjusted discount rates and of future marginal profitability. Corporate bond prices also depend on these variables. I...

We study a model where households use home equity to finance consumption expenditures and we analyze the macroeconomic consequences of a credit crunch triggered by tightening lending standards.

A salient feature of the recent recession is that regions that have experienced the largest changes in household leverage have also experienced the largest declines in output and employment. We study a cash-in-advance economy in which home equity borrowing, alongside public money, is used to...

The financial crisis has demonstrated the need to better analyze financial innovations. While some of these innovations are beneficial, others do not improve overall welfare and create unacceptable risks for the economy. A major impediment to efficient regulation is the lack of research...