We develop a credit-risk model to study how information acquisition affects the liquidity in a secondary bond market. In our model, the creditors of a firm can acquire costly information about the firm and exploit the information advantage by selling their bonds to uninformed buyers. When a...

Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth. Ambiguity can help resolve...

We develop a dynamic stochastic full equilibrium New Keynesian model of two open economies based on stochastic differential equations to analyse the interdependence between monetary policy and financial markets in the context of the recent financial crisis. The effect of bubbles on stock and...