It is widely acknowledged that the recent generation of DSGE models failed to incorporate many of the liquidity and financial accelerator mechanisms revealed in the global financial crisis that began in 2007. This paper complements the papers presented at the 2009 BIS annual conference focused...

In this paper, I present a theory of dynamic economic growth, business cycles, and asset pricing that integrates (1) Marx's idea (and emphasized by Klein) of a two-class heterogeneity of the ownership structure of physical capital and human capital in a capitalist society, (2) Keynes' idea of...

The large spread between equity returns and risk free rates observed in most stock markets (the "equity premium puzzle") has been subject of intense debates. Two main families of models claim to solve this puzzle: habit formation models and loss aversion models. The goal of this paper is to...

We study how the structure of housing finance affects the transmission of monetarypolicy shocks. We document three main facts: first, the features of residentialmortgage markets differ markedly across industrialized countries; second, and accordingto a wide range of indicators, the transmission...

This paper estimates the wealth effects on consumption in the euro area as a whole. Ishow that: (i) financial wealth effects are relatively large and statistically significant;(ii) housing wealth effects are virtually nil and not significant; (iii) consumptiongrowth exhibits strong persistence...

Strong procyclical fluctuations in the durable production are the most prominent featureof the empirical response to monetary shocks. This paper investigates the role of preferencesin matching this feature of the data in a two-sector sticky price model with flexibly priceddurables. The reaction...

This paper proposes a theoretical framework to analyze the impacts of credit and technologyshocks on business cycle dynamics, where firms rely on banks and households for capitalfinancing. Firms are identical ex ante but differ ex post due to different realizations of firmspecific technology...

We develop a stylized model of economic growth with bubbles. In this model, financial frictions leadto equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductiveinvestors demand bubbles while productive investors supply them. Because of this, bubbly...

We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the firm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-tradable equity position and a variable ’salary’...