This paper studies the determinants of the equity premium as implied by producers' first-order conditions. A closed form expression is presented for the Sharpe ratio at steady-state as a function of investment volatility and adjustment cost curvature. Calibrated to the U.S. postwar economy, the...

The volatility of US business cycles has declined during the last two decades. During the same period the financial structure of firms has become more volatile. In this paper we develop a model in which financial factors play a key role in generating economic fluctuations. Innovations in...

Although international financial markets are highly integrated across the more well-developed countries, investors nevertheless hold portfolios that consist nearly exclusively of domestic assets. This violation of the predictions of standard theories of portfolio choice is known as the...

Exchange rates and option prices incorporate market participants' views about the credibility and the effects of exchange rate targets. This paper presents a tractable exchange rate model for the Euro-Swiss franc floor that can be used to price options. The model is estimated with exchange rate...

The drivers of Bitcoin's price fluctuations are studied within a framework based on Cagan's model of hyperinflation. In the model, the price of Bitcoin is driven by stochastic adoption and payments technology, as well as endogenous expectations of future values. The model is estimated with...

Can the presence of nontraded consumption goods explain the high degree of 'home bias' displayed by investor portfolios? We find that the answer is no, so long as individuals have access to free international trade in financial assets. In particular, it is never optimal to exhibit home bias with...

Bank liabilities include debt with long-term maturities and deposits that typically are not withdrawn for extended periods. This subjects bank liabilities to debt dilution. Our analysis shows that this has major effects for how monetary policy shocks are transmitted to banks and for optimal...

Investors buy non-sovereign stores of value such as gold and bitcoin despite the absence of a yield. This paper presents an equilibrium model for studying investor adoption and the pricing of non-sovereign stores of value. The model is used for the quantitative analysis of historical gold prices...