This paper studies the importance of heterogeneous beliefs for the dynamics of asset prices. We focus on currency markets, where the absence of short-selling constraints allows us to perform sharper tests of theoretical predictions. We examine both option and underlying markets, so that we can...

The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news...

In this paper the inflation hedging characteristics of Hong Kong real estate market are examined using 1998-2006 data. Both short-term and long-term methods are used. The short-term method follows Fama and Schwert framework. To separate expected and unexpected inflation rate from nominal...

What factors cause banks to lend to the private sector in a bank-based financial system like the ones in place in Europe? In this paper we compare a traditional demand oriented model to a non-traditional capital budgeting model of bank lending based on movements in the equity cost of capital for...

This paper consists of four short pieces on the subprime mortgage market. Based upon a proprietary database, LoanPerformance, of 80 million mortgage loans originated from January 1999 to July 2007, these pieces demonstrate: (1) the subprime loan market has contributed to a net gain in...

We provide a model in which irrational investors trade based upon considerations that are not inherently related to fundamentals. However, because trading activity affects market prices, and because of feedback from security prices to cash flows, the irrational trades influence underlying cash...

This paper solves in closed-form a continuous time model of the nominal and real term structures of interest rates in a monetary economy with habit formation. A crucial property is that, unlike in affine specifications, the price of risk is not a constant multiple of the volatility of interest...

There has been much discourse in the public media about the quality of and effectiveness of government spending in Jamaica. However to put in context and do a comparative analysis should serve to highlight critical discourse analysis and thinking rather than speaking to hyperbolic political...

Surveys provide direct information on expectations, but only short histories are available at quarterly frequencies or for long-horizon expectations. Longer histories typically contain only semi-annual observations of short-horizon forecasts. The authors fill in the gaps by constructing a...

The world has a shortage of financial assets. Asset supply is having a hard time keeping up with the global demand for store of value and collateral by households, corporations, governments, insurance companies, and financial intermediaries more broadly. The equilibrium response of asset prices...