The paper presents a new method to solve DSGE models with a great number of heterogeneous agents. Using tools from systems and control theory, it is shown how to reduce the dimension of the state and the policy vector so that the reduced model approximates the original model with high precision....

Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an...

We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective...

The paper presents a computationally efficient method to solve overlapping gener- ations models with asset choice. The method is used to study an OLG economy with many cohorts, up to 3 different assets, stochastic volatility, short-sale constraints, and subject to rather large technology shocks....

Once New Keynesian (NK) theory (see, e.g., Woodford 2003) is combined with a standard model of investment (see, e.g., Thomas 2002), the resulting framework loses its ability to generate a realistic monetary transmission mechanism. This is the puzzle uncovered in Reiter et al. (2013). The simple...

We model the optimal reaction of a public PAYG pension system to demographic shocks. We compare the ex-ante first best and second best solution of a Ramsey planner with full commitment to the outcome under simple third best rules that mimic the pension systems observed in the real world. The...

Existing models of equilibrium unemployment with endogenous labor market participation are complex, generate procyclical unemployment rates and cannot match unemployment variability relative to GDP. We embed endogenous participation in a simple, tractable job market matching model, show...

Das Ziel der vorliegenden Studie ist es, die Auswirkungen von Änderungen in den Energiepreisen auf Österreichs Exportwirtschaft empirisch und theoretisch zu untersuchen. Dabei umfasst das Forschungsdesign sowohl quantitative als auch qualitative Ansätze. Der Endbericht fasst die Ergebnisse...

Long-term debt contracts transfer aggregate risk from borrowing firms to lending banks. When aggregate shocks increase the future default probability of firms, banks are not compensated for the default risk of existing contracts. If banks are highly leveraged, this can lead to financial...

Standard (S,s) models of lumpy investment allow us to match many aspects of the micro data, but it is well known that the implied interest rate sensitivity of investment is unrealistically large. The monetary transmission mechanism is therefore a particularly clean experiment to assess the...