Large crises tend to follow rapid credit expansions. Causality, however, is far from obvious. We show how this pattern arises naturally when financial intermediaries optimally exploit economic rents that drive their franchise value. As this franchise value fluctuates over the business cycle, so...

Recent fiscal interventions have raised concerns about US public debt, future distortionary tax pressure and long-run growth potential. We explore the long-run implications of public financing policies aimed at short-run stabilization when: (i) agents are sensitive to model uncertainty as in...

How much safety and liquidity can the US government provide? Should it accommodate demand for these attributes because high convenience yields in Treasuries lower its cost of borrowing? We evaluate a novel fiscal risk channel limiting the government's capacity to provide such services. Rising...

The dramatic stock market crash of March 2020 was preceded by a prolonged rise in Tobin's Q and a productivity slowdown. Do longer stock market booms and sharper corrections reflect structural changes in the US economy? We address this question about Q by estimating an endogenous growth model...

We develop a theory linking "misallocation," i.e., dispersion in marginal products of capital (MPK), to macroeconomic risk. Dispersion in MPK depends on (i) heterogeneity in firm-level risk premia and (ii) the price of risk, and thus is countercyclical. We document strong empirical support for...