In a model of a two-period exchange economy under uncertainty, we find both upper and lower bounds for the risk free interest rate when the agents' utility functions exhibit constant absolute risk aversion. These bounds are independent of the degree of market incompleteness, and so in particular...

This paper studies the macroeconomic effects of consumer credit conditions in an incomplete-market, general equilibrium model where households hold unsecured debt, and firms use labor. I show that consumer finance disturbances can cause business cycle fluctuations through a rich interplay...

How do liquidity constraints affect households? This is a well-researched subject with remarkably few theoretical results. This paper bridges this gap by providing a closed form expression for consumption with liquidity constraints for a wide class of utility functions (HARA). Using this...

We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to...

Since the 1970s, income risk faced by households has increased and monetary policy transmission has become weaker. I investigate the role of income risk in weakening monetary policy transmission. I first show analytically that increased income risk weakens the substitution effect of interest...

This paper shows that the precautionary motive, combined with asset incompleteness, is a major source of volatility and indeterminacy in financial markets. Price fluctuations originate from agents' efforts to insure themselves through time by borrowing and lending instead of shifting income...