I measure the welfare gains from eliminating fluctuations in investment in an emerging economy such as Argentina. The estimated welfare effects are an order of magnitude higher than those for the US and arise with moderate degrees of diminishing returns to investment

This paper models the dynamic process through which a large society may succeed in building up its social capital by establishing a stable and dense pattern of interaction among its members. In the model, agents interact according to a collection of infinitely repeated Prisoner's Dilemmas played...

The welfare cost of economic uncertainty has a term structure that is a simple transformation of the term structures of the equity premium and interest rates. Twenty years of financial market data suggest a term structure of welfare costs that is downward-sloping on average, especially during...

More than 20 years of financial market data suggest a term structure of the welfare cost of economic uncertainty that is downward-sloping on average, especially during downturns. This evidence offers guidance in selecting a model to study the benefits of macroeconomic stabilization from a...

Smoother labor incomes alleviate credit constraints by reducing workers' desire to borrow, and prospects of upward income mobility have smaller beneficial effects for currently poor workers when borrowing constraints are binding. These simple theoretical insights are consistent with the...

We study how the use of judgment or "add-factors" in forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which new phenomena, which we call exuberance equilibria, can exist in a standard self-referential environment....

The novelty of this work is in the presentation of a theoretical framework that allows the modeling of an announced switch of the monetary regime. In our experiment, the monetary authority announces stabilization of the nominal exchange rate after the announced number of periods. We analyze the...