This paper develops an overlapping generations model of optimal rebalancing where agents differ in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that influences levered and unlevered agents in opposite directions, an aggregate risk tolerance effect that depends...

Standard portfolio advice is that agents should hold a constant share of risky assets. All agents cannot, however, follow this advice because supply and demand of risky assets must be equal. To study equilibrium rebalancing, the paper develops an overlapping generations model in which agents...

This paper develops an overlapping generations model of optimal rebalancing where agents differ in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that influences levered and unlevered agents in opposite directions, an aggregate risk tolerance effect that depends...

Does corporate diversification reduce shareholder value? Since firms endogenously choose to diversify, exogenous variation in diversification is necessary in order to draw inferences about the causal effect. We examine changes in the within-firm dispersion of industry investment, or diversity.'...

This paper examines the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. The first part uses a simple three-period model to show that, if households expect to face binding borrowing constraints in bad states of nature, savings rates will respond...

The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward-looking aggregate supply and demand with some microfoundations, and with stylized realistic lags in the different transmission channels for monetary policy. The paper compares targeting...

This paper presents evidence that the cost channel' may be an important part of the monetary transmission mechanism. We argue that if working capital is an essential component of production and distribution, monetary contractions can affect output through a supply channel as well as the...

This paper analyzes how the decision of when to buy a durable good affects both non-durable consumption and business cycle dynamics. At the individual level, we show that the timing of durable goods purchases plays an important role in smoothing consumption over time. In the benchmark case, the...

This paper develops a welfare-based model of monetary policy in an open economy. We focus on the extent to which monetary policy should be employed in maintaining the exchange rate. The traditional approach maintains that exchange rate flexibility is desirable in the presence of real...