We propose a frictionless general equilibrium model in which two international consumers with recursive preferences trade two consumption goods and a complete set of date and state contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich...

We propose a new welfare criterion that allows us to rank different financial market structures in the presence of belief heterogeneity. We analyze economies with complete and incomplete financial markets and/or restricted trading possibilities in the form of borrowing limits or transaction...

We study an economy in which two types of agents have diverse beliefs about the law of motion for an exogenous endowment. One type knows the true law of motion, and the other learns about it via Bayes's theorem. Financial markets are incomplete, the only traded asset being a risk-free bond....

We model transitional dynamics that emerge after the adoption of a new monetary-policy rule. We assume that private agents learn about the new policy via Bayesian updating, and we study how learning affects the nature of the transition and choice of a new rule. The model endogenously generates...

of different maturities.

We first scrutinize and challenge Prescott's (2002, 2004) quantitative analysis of the role of differences in taxes in explaining cross-country differences in labor market outcomes, and then defend an alternative model that assigns an important role to cross-country differences in social...

We analyze the democratic politics of a rule that separates capital and ordinary account budgets and allows the government to issue debt only to finance capital items. Many national governments followed this rule in the 18th and 19th centuries and most US states do so today. Despite its...