The interaction between credit frictions, financial innovation, and a switch from optimistic to pessimistic beliefs played a central role in the 2008 financial crisis. This paper develops a quantitative general equilibrium framework in which this interaction drives the financial amplification...

This paper studies overborrowing, financial crises and macro-prudential policy in an equilibrium model of business cycles and asset prices with collateral constraints. Agents in a decentralized competitive equilibrium do not internalize the negative effects of asset fire-sales on the value of...

The performance of macroeconomic indicators of capital mobility is examined in the context of an intertemporal equilibrium model of a small open economy. Recursive numerical solution methods are used to compute measures of consumption smoothing, savings-investment correlation, and the...

A three-good, stochastic intertemporal equilibrium model of a small open economy is used to examine the link between terms of trade and business cycles. Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts...

We develop a two-country, balanced-growth intertemporal general equilibrium model to examine two predictions of the Balassa-Samuelson model, namely that (i) productivity differentials determine the domestic relative price of nontradables and (ii) deviations from purchasing power parity reflect...

A dynamic stochastic equilibrium model of a small open economy is used to quantify the macroeconomic effects of introducing capital controls to stabilize the balance of trade. This model focuses on the role of international trade and foreign debt as instruments that help smooth consumption in...

This paper examines trade reforms of uncertain duration undertaken in economies subject to real foreign and domestic shocks. These reforms induce consumption and import booms regardless of whether they succeed or fail and of the degree of intertemporal elasticity of substitution. If tariff...