We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in...

This paper describes an equilibrium life-cycle model of housing where nonconvex adjustment costs lead households to adjust their housing choice infrequently and by large amounts when they do so. In the cross-sectional dimension, the model matches the wealth distribution; the age profiles of...

Many policy-makers and researchers view the recent financial and real economic crises across North America, Europe and beyond as a global phenomenon. Some have argued that this global recession has a common source: the U.S. financial crisis. This paper investigates the extent to which a credit...

This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to financial frictions and idiosyncratic funding liquidity risk in their...

This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to financial frictions and idiosyncratic funding liquidity risk in their...

Motivated by the apparent failure of the credit multiplier mechanism (CM) to deliver amplification in DSGE models, we re-examine its role in business cycles to address the question: is something wrong with the CM? Our answer is no. In coming to this answer we construct a model with reproducible...

This paper contributes to the GDP-consumption comovement puzzle literature investigating the role of tax evasion in explaining the consumption path after a Marginal Efficiency of Investment shock. We use an otherwise standard medium-scale New Keynesian DSGE model combining tax evasion with...

In the U.S. economy during the past 25 years, house prices exhibit fluctuations considerably larger than house rents, and these large fluctuations tend to move together with business cycles. We build a simple theoretical model to characterize these observations by showing the tight connection...

This paper develops a DSGE model in which banks use short term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms must borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show that the presence of...

We study housing and debt in a quantitative general equilibrium model. In the cross-section, the model matches the wealth distribution, the age profiles of homeownership and mortgage debt, and the frequency of housing adjustment. In the time-series, the model matches the procyclicality and...