This paper studies the full equilibrium dynamics of an economy with financial frictions. Due to highly non-linear amplification effects, the economy is prone to instability and occasionally enters volatile episodes. Risk is endogenous and asset price correlations are high in down turns. In an...

This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital...

We study a principal-agent setting in which both sides learn about future profitability from output, and the project can be abandoned/terminated if profitability is too low. With learning, shirking by the agent both reduces output and lowers the principal's estimate of future profitability. The...

We build a linear-quadratic model to analyze trading in a market with private information and heterogeneous agents. Agents receive private taste/inventory shocks and trade continuously. Agents differ in their need for trade as well as the cost to hold excessive inventory. In equilibrium, trade...