Currencies that are at a forward premium tend to depreciate. This `forward premium-depreciation anomaly' represents an egregious deviation from uncovered interest parity. We document the returns to currency speculation strategies that exploit this anomaly. The first strategy, known as the carry...

Asset prices display high covariance relative to the covariance of their payoffs. (Pindyck and Rotemberg, 1993; Barberis, Shleifer and Wurgler, 2002) Many take this ‘excess covariance’ to be evidence of investor irrationality. This model reconciles the high covariance with a rational...

We propose a theory of unsecured debt that is based on the existence of private information about a person's type and on the fact that some debtors have the incentive to forego bankruptcy in order to signal their type. The theory formalizes the idea that the type of a person is relevant to...

We develop a dynamic model of sovereign default and renegotiation to study how expectations of default and debt restructuring in the near future affect the ex ante maturity structure of sovereign debts. This paper argues that the average maturity is shorter when a country is approaching...

The ability to insure against idiosyncratic endowment risk depends on the organization of markets and the availability of consumption insurance. When all agents are identical ex ante and there are complete contingent claims, then full insurance can be achieved. Simple frictions, such as...

This paper studies dynamic non-linear taxation in a two-period model without government commitment and a continuum of agents with privately known skill parameters, which are constant overtime. The government is utilitarian but cannot commit at t=1 to the tax scheme that she will propose at t=2....

In the standard model of dynamic interaction, players are assumed to receive public signals according to some exogenous distributions for free. We deviate from this assumption in two directions to consider an aspect of information structure in a more realistic way. We assume that signals are...

Social insurance arrangements that are optimal from the perspective of a utilitarian planner confronting a population of privately informed agents frequently exhibit an "immiseration" property - with probability 1 an agent's continuation utility will drift downwards to its minimal level. Thus,...

In this paper, we analyze the problem of store design when consumers have preferences with temptation and self-control, as introduced by Gul and Pesendorfer (2001). We say that a monopolist designs its stores when it chooses the number of stores to open and the quality and price of the goods to...