We show that international trade in goods is the main determinant of international equity portfolios and offers a compelling -- theoretically and empirically -- resolution of the portfolio home bias puzzle. The model implies that investors can achieve full international risk diversification if...

We study the Ramsey policy problem in an economy in which public debt contributes to the supply of assets that private agents can use as buffer stock and collateral, or as a vehicle of liquidity. Issuing more debt eases the underlying financial friction. This raises welfare by improving the...

We study the Ramsey policy problem in an economy in which firms face a collateral constraint. Issuing more public debt alleviates this friction by increasing the aggregate quantity of collateral. In so doing, however, the issuance of more debt also raises interest rates, which in turn increases...

We propose a new strategy for dissecting the macroeconomic time series, provide a template for the business-cycle propagation mechanism that best describes the data, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the...

We develop a tractable method for augmenting macroeconomic models with autonomous variation in higher-order beliefs. We use this to accommodate a certain type of waves of optimism and pessimism that can be interpreted as the product of frictional coordination and, unlike the one featured in the...

Gold rushes are periods of economic boom, generally associated with large increases in expenditures aimed at securing claims near new found veins of gold. An interesting aspect of gold rushes is that, from a social point of view, much of the increased activity is wasteful since it contributes...

This papers examines changes in the distribution of per-worker-output across countries over the period 1960-98, with a particular focus on identifying the forces behind the hollowing out of the middle of the distribution and the associated emergence of a twin-peaks phenomenon. The main finding...

This paper is motivated by a set of cross-country observations on labor productivity growth among industrial countries over the period 1960-1997. In particular, we show that over this period, the speed of convergence among industrialized countries has decreased substantially while the negative...

This paper examines the extent to which the process of globalization can explain the observed widening in the cross--country distribution of output--per--worker. In particular examine whether the opening up of trade in a Hecksher--Ohlin type model of trade can explain the observed changes. On...

The paper examines a simple model in which exogenous political risk creates uncertainty about tariffs. The model predicts a relation between consumption and tariffs that differs radically from that implied by models without asset markets or political risk. Given the probability distribution of...