We model the link between inequality and excessive risk taking. In the presence of increasing returns to tax avoidance, the middle class is willing to take non rewarded financial risk despite risk aversion. Electoral pressure may lead an incumbent politician to endorse this excessive risk taking...

This paper develops an equilibrium model of a subprime mortgage market. The model is analytically tractable and delivers plausible orders of magnitude for borrowing capacities, loan-to-income ratios, home prices, and default and trading intensities. We offer simple explanations for several...

When do flexible exchange rates prevent monetary and financial conditions from spilling over across currencies? We examine a model in which international investors strategically supply capital to a small inflation-targeting economy with flexible exchange rates. For some combination of...