We examine the safety of government bonds in the presence of Knightian uncertainty amongst financial market participants. In our model, the information insensitivity of government bonds is driven by strategic complementarities across counterparties and the structure of trading relationships. We...

Following the seminal contribution of Kiyotaki and Moore (1997), the role of collateral constraints for business cycle fluctuations has been highlighted by several authors and collateralized debt is becoming a popular feature of business cycle models. In contrast, Kocherlakota (2000) and Cordoba...

We show that sentiments - self-fulfilling changes in beliefs that are orthogonal to fundamentals - can drive persistent aggregate fluctuations under rational expectations in a beauty contest game. Such fluctuations can occur even in the absence of exogenous aggregate fundamental shocks....

We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. In...

We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia. Corporate bonds are priced in a reduced-form credit risk model...

Since the work of Doepke and Schneider (2006a) and Meh and Terajima (2008), we know that inflation causes major redistribution of wealth between households and the government, between nationals and foreigners, and between households within the same country. Two types of monetary policy,...

In this paper, we develop a theoretical model which identifies four channelsimport prices, competition with domestic suppliers and workers, and commodity pricesthrough which priceand wage-setting conditions in country j may affect inflation in country i. We estimate a dynamic inflation equation...

Recent events in financial markets have underlined the importance of analyzing the link between the financial health of banks and real economic activity. This paper contributes to this analysis by constructing a dynamic general equilibrium model in which the balance sheet of banks affects the...

This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect...

We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their...