We present a model where default occurs because of a country's limited commitment to repay. In this model, default is costly to the country as it leads to a loss of income and a denial of access to markets. If a country's debt is high and income is persistently low, the country defaults on its...

During the period 1990-93, Finland experienced the deepest economic downturn in an industrialized country since the 1930s. We argue that the collapse of the Finnish trade with the Soviet Union in and of itself resulted in a large contraction of the economy and a costly restructuring of the...

firms consummating “sub optimal” matches.

of imports and the degree of differentiation across inputs in a sector, for which I find strong support in the data. Moreover, imperfect competition establishes a link between FDI liberalization and optimal pricing: suppliers find optimal to reduce their prices in response to the possibility of...

framework, stochastic volatility in consumption growth generates both a state-dependent market price of model uncertainty and a stochastic market price of risk. We estimate the model using data from the bond and equity markets, as well as consumption data. We show that the model is consistent...

This paper incorporates a time-varying intensity of disasters in the Rietz-Barro hypothesis that risk premia result from the possibility of rare, large disasters. During a disaster, an asset's fundamental value falls by a time-varying amount. This in turn generates time-varying risk premia and...

TBA

In Bassetto with Sargent (2004) and Bassetto and Lepetyuk (2007), I developed a model that can be used to quantitatively assess the consequences of departures from Ricardian equivalence on the mix of public goods provided by the government. Those papers assume that mobility is exogenous and that...

We estimate an empirical model of consumption disasters using a new panel data set on consumption and output for over 20 countries and more than 100 years. The model allows for permanent and transitory effects of disasters, nesting both unit root and trend stationary consumption growth. We...