Motivated by the recent experience of the U.S. and the Eurozone, we describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model can be...

How does physical capital accumulation affect the decision to default in developing small open economies? We find that, conditional on a level of foreign indebtedness, more capital improves the sovereign's ability to meet its obligations, reducing the likelihood of default and the risk premium....

Motivated by the recent experience of the U.S. and the Eurozone, the authors describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model...

How does physical capital accumulation affect the decision to default in developing small open economies? We find that, conditional on a level of foreign indebtedness, more capital improves the sovereign?s ability to meet its obligations, reducing the likelihood of default and the risk premium....

What are the positive and normative implications of eliminating bankruptcy protection for indebted individuals? Without bankruptcy protection, creditors can collect on defaulted debt to the extent permitted by wage garnishment laws. The elimination lowers the default premium on unsecured debt...

This paper examines how supply-side policies may play a role in fighting a low aggregate demand that traps an economy at the zero lower bound (ZLB) of nominal interest rates. Future increases in productivity or reductions in mark-ups triggered by supply-side policies generate a wealth effect...

We propose a novel method to estimate dynamic equilibrium models with stochastic volatility. First, we characterize the properties of the solution to this class of models. Second, we take advantage of the results about the structure of the solution to build a sequential Monte Carlo algorithm to...

Using a segmented market model that includes state-dependent asset market decisions along with access to credit, we analyze the impact that transactions credit has on interest rates and prices. We find that the availability of credit substantially changes the dynamics in the model, allowing...

Using an estimated dynamic stochastic general equilibrium model, I show that shocks to a common international stochastic trend explain on average about 10% of the variability of output in several small developed economies. These shocks explain roughly twice as much of the volatility of...

The authors show that in weakly identified models (1) the posterior mode will not be a consistent estimator of the true parameter vector, (2) the posterior distribution will not be Gaussian even asymptotically, and (3) Bayesian credible sets and frequentist confidence sets will not coincide...