A large body of empirical research finds that a pair of regions within a country tends to trade 10 to 20 times as much as an otherwise identical pair of regions across countries. In the context of the standard trade models, the large “border effect” is problematic, because it is consistent...

We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of...

The authors incorporate home production in a dynamic general equilibrium model of consumption and saving with illiquid housing and a collateralized borrowing constraint. They show that the model is capable of explaining life-cycle patterns of households' time use and consumption of different...

Overconfidence is a widely documented phenomenon. Empirical evidence reveal two types of overconfidence in financial markets: investors both overestimate the average rate of return to their assets and underestimate uncertainty associated with the return. This paper explores implications of...

The authors develop a life-cycle model to study the effects of house price changes on household consumption and welfare. The model explicitly incorporates the dual feature of housing as both a consumption good and an investment asset and allows for costly adjustments in housing and mortgage...