In this paper we present Aino 3.0, the latest vintage of the dynamic stochastic general equilibrium (DSGE) model used at the Bank of Finland for policy analysis. Aino 3.0 is a small-open economy DSGE model at the intersection of the recent literatures on so-called TANK ('Two-Agent New...

This paper derives and estimates an aggregate Euler consumption equation which allows one to compare the importance of collateral constraints and non-separability of consumption and leisure as alternative sources of excess sensitivity of consumption to current income. Estimation results suggest...

I study the link between house prices, lending standards, and aggregate over-investment in housing. I develop a model of the housing market where the credit market is affected by asymmetric information. Selection is towards less creditworthy borrowers. Asymmetric information coupled with...

Communication targeting households and firms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication...

Macroeconomic models typically assume additively separable preferences where consumption enters the utility function in a logarithmic form. This restriction implies that consumption growth is highly sensitive to movements in real interest rates, which in turn implies an unrealistically steep...

Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in...

Barsky and Sims (2012, AER) demonstrated, via indirect inference, that confidence innovations can be viewed as noisy signals about medium-term economic growth. They highlighted that the connection between confidence and subsequent activity, such as consumption and output, is primarily driven by...

Unique administrative data on a representative population's cognitive abilities, spending, and financials reveal that consumers at or below median cognitive abilities barely react when their incentives to spend or borrow change, even if they earn high incomes and are financially unconstrained...

I document a statistical link between old-age dependency ratios and average markups. I propose that a mechanism whereby households develop deep habits in consumption as they age could explain this feature of the data. I show that when this mechanism is embedded in an overlapping generations New...

In a dynamic setting, housing is both an asset and a consumption good.But should it be taxed like other forms of consumption or like other forms of saving?We consider the optimal taxation of the imputed rent from owner housing within a version of the neoclassical growth model.We find that the...