We propose a general simulation-based procedure for estimating quality of approximate policies in heterogeneous-agent equilibrium models, which allows to verify that such approximate solutions describe a near-rational equilibrium. Our procedure endows agents with superior knowledge of the future...

Applied general-equilibrium (AGE) models have often made compromises to circumvent difficult modeling problems. One of these is avoiding endogenous zeros, ruling out important questions. Traditional perfect competition models: when do technologies or trade links switch from active to inactive or...

We question a deep-ingrained doctrine in asset pricing: If an empirical characteristic-return relation is consistent with investor "rationality," the relation must be "explained" by a risk factor model. The investment approach changes the big picture of asset pricing. Factors formed on...

This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the...

The non-pecuniary benefits of managing a small business are a first order consideration for many nascent entrepreneurs, yet the preference for business ownership is mostly ignored in models of entrepreneurship and occupational choice. In this paper, we study a population with varying...

How likely is trade liberalization to produce efficiency gains in the presence of imperfect competition, scale economies, and higher-than-average wages in the modern sectors -- all common features of developing economies? These features create a potential conflict to the extent that traditional...

The epidemiological literature suggests that virus transmission occurs only when individuals are in relatively close contact. We show that if society can control the extent to which economic agents are exposed to the virus and agents can commit to contracts, virus externalities are local, and...

The separation of ownership and control allows controlling shareholders to pursue private benefits. We develop an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical...