This paper examines whether empirical and theoretical results suggesting a relatively small role for counterparty credit risk in the determination of interest rate swap rates hold during periods of stress in the financial markets, such as the chain of events that followed the Russian default...

One strategy for disinflation prescribes a deliberate path towards low inflation. A contrasting opportunistic approach eschews deliberate action and instead waits for unforeseen shocks to reduce inflation. This paper compares the ability of these two approaches to achieve disinflation---and at...

The credit derivatives market is emerging as a potentially important new development that may help shape the overall financial markets in the years to come. In this paper, I provide a brief overview of the credit derivatives market and assess its future potential in the creation of...

Motivated by issues raised in both the finance and economics literatures, I construct a dynamic general equilibrium model where agents use differing degrees of sophistication when forecasting future economic conditions. All agents solve standard dynamic optimization problems and face strategic...

I analyze the business cycle implications of noisy economic indicators in the context of a dynamic general equilibrium model. Two main results emerge. First, measurement error in preliminary data releases can have a quantitatively important effect on economic fluctuations. For instance, under...

I construct a dynamic general equilibrium model where agents differ in the way they form expectations. Sophisticated agents form model-consistent expectations. Rule-of-thumb agents' expectations are based on an intuitive forecasting rule. All agents solve standard dynamic optimization problems...

If current projections of future budget surpluses materialize, investing in Treasury securities--an asset class with which investors have long been familiar--could eventually become a thing of the past. In this paper, I examine the extent to which investors' portfolio allocation decisions are...

How does the additional uncertainty associated with noisy economic data affect business cycle fluctuations? I use a simple variant of the neoclassical growth model to show that the answer depends crucially on the assumed expectation-formation capabilities of agents. Under efficient signal...

As recently as early 1994, market participants had to infer the stance of U.S. monetary policy according to the type and size of the open market operations conducted by the Federal Reserve's Trading Desk. Thus, investors were exposed to uncertainty about both the timing and the motivation for...