We attempt to explain the overreaction of asset prices to movements in short-term interest rates, dividends, and asset supplies. The key element of our explanation is a margin constraint that traders face which limits their leverage to a fraction of the value of their assets. Traders may lever...

(iii) Transaction velocities are much higher for liquid assets than for stocks, specifically, we explore the extent to which incorporating an explicit motive for holding liquid assets can explain the above observations. We introduce a demand for liquid assets by adding uninsured individual risk...

This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary...