Disequilibrating macro shocks affect different firms' prospects differently, increasing idiosyncratic variation in forward-looking stock returns before affecting economic growth. Consistent with most such shocks from 1947 to 2020 enhancing productivity, increased idiosyncratic stock return...

The amount of information produced about firms' productivities and about the quality of collateral backing their loans varies over time. These information dynamics determine the evolution of credit, output and productivity, which feeds back into incentives to produce information. We characterize...

In line with Keynes' intuition, volatility in the stock market and in real economic activity are linked by expectations of long term profits. We show that analysts' optimism about the long term earnings growth of S&P 500 firms is associated with a near term boom in major US financial markets,...

We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when...

Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill...

Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as "fear of floating". We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is...

We show that firms' nominal required returns to capital (i.e., their discount rates) are sticky with respect to expected inflation. Such nominally sticky discount rates imply that increases in expected inflation directly lower firms' real discount rates and thereby raise real investment. We...

We study the transmission of monetary policy through bank securities portfolios using granular supervisory data on U.S. bank securities, hedging positions, and corporate credit. Banks that experienced larger losses on their securities during the 2022-2023 monetary tightening cycle extended less...

We propose a model where monetary policy is the key determinant of aggregate asset prices (financial conditions). Spending decisions are made by a group of agents ("households") that respond to aggregate asset prices, but with noise, delays, and inertia. Asset pricing is determined by a...

We introduce FDIF, a measure of Fed communication surprise based on the text of FOMC statements. FDIF measures the difference between text-implied and actual values of key market variables. Positive FDIF of countercyclical variables (e.g., credit spreads) is associated with negative...