This paper develops a micro-founded general equilibrium model of the financial system composed of ultimate borrowers, ultimate lenders and financial intermediaries. The model is used to investigate the impact of uncertainty about the likelihood of governmental bailouts on leverage, interest...

We analyze the behavior of an array of financial assets around European Central Bank (ECB) monetary policy decisions. We document that European and U.S. equities accumulate sizeable excess returns in the week ahead of an announcement. Pre-ECB announcement returns are stronger from the...

Housing is by far the most important asset in Chinese households' balance sheets. However, despite forceful and frequent government interventions, the rise in Chinese housing prices has not been contained as much as intended, a trend that has not been reversed by the COVID-19 shock. In this...

Housing is by far the most important asset in households’ balance sheets across many countries including China, and the policy relevance of the housing sector has been increasingly recognized (as evident by the inclusion of the housing cost into ECB’s inflation measure proposed in its new...

I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and...

For markets to work efficiently, buyers and sellers must be able to transact easily. People must have access to a marketplace such as a supermarket or a stock exchange with adequate liquidity. Further, people must have confidence that such a well-functioning marketplace will also exist in the...

We discover sentiment-driven equilibria in popular models of imperfect risk sharing. In these equilibria, sentiment dynamics behave like uncertainty shocks, in the sense that self-fulfilled beliefs about volatility drive aggregate fluctuations. Because such fluctuations can decouple from the...

Why do fire sales occur if many risks are hedgeable? We study a version of Brunnermeier and Sannikov (2014) in which all fundamental risks can be hedged frictionlessly. Our analysis shows that fire sales are inherently self-fulfilling. Fundamental shocks can never cause fire sales, and an...