This paper develops a model with both financial and labor market frictions, and jointly analyzes the precautionary behavior of firms and households. Financial frictions generate costly bankruptcy risk for firms and limited insurance against unemployment risk for workers. We solve and simulate a...

Adverse selection is commonly used to explain inefficiencies in specific markets. In this paper,we incorporate an informational asymmetry into a decentralized dynamic economy and study its implications for aggregate and sector level dynamics. We show that it leads to slow moving capital, lagged...

We provide new evidence on the responsiveness of real interest rates and inflation to monetary shocks. Our identifying assumption is that the increase in the volatility of interest rate news in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about monetary...

The central explanation for how monetary policy transmits to the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism that operates even in the absence of nominal rigidities. We show...

This paper shows how the empirical implications of incomplete markets models can be assessed using the same full-information methods that are commonly used for representative agent models. It then asks what features of the microeconomic insurance arrangement are important for understanding the...

This paper estimates the impact of parents' time investment in young children, their socioeconomic status and family structure on long-term outcomes of children. We developed and estimated a model of dynastic households in which altruistic individuals choose fertility, labor supply, and time...

The flow opportunity cost of moving from unemployment to employment consists of foregone public benefits and foregone utility from non-working time relative to consumption. Recent research uses a relatively high opportunity cost to generate volatile unemployment fluctuations in search and...

We address the question of whether and how a sovereign should reduce its external indebtedness when default is a significant possibility, with a particular focus on whether a sovereign should buy back or dilute existing long-term sovereign bonds. Our main finding is that when reduction of debt...

In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller...

Prepayment risk is a major consideration in the US credit card market. According to industry studies, about 17% of balances are transferred annually. Using a dynamic model of repricing, this paper analyzes the impact of prepayment risk on the functioning of the credit card market. We show that...