We present empirical evidence and a theoretical argument that uncertainty shocks act like a negative aggregate demand shock, which raises unemployment and lowers inflation. We measure uncertainty using survey data from the United States and the United Kingdom. We estimate the macroeconomic...

We study a political economy model of entry barriers. Each period the policymaker determines whether to impose a high barrier on entry, and the special interest groups try to influence the policymaker's decision. Entry is accompanied by creative destruction— when many new firms enter, old...

This paper explores price formation in environments with multidimensional private information. Asset sellers are informed both about their need to raise cash and about the quality of the asset they are selling. Asset buyers have rational expectations about the distribution of assets for sale at...

Substantial progress has been made in recent years in integrating optimal portfolios into (open macro) general equilibrium models using standard local approximation (perturbation) methods. We compare these perturbation-based portfolio solution methods with a global portfolio solution method to...

The U.S. economy witnessed dramatic and widespread house price inflation during the previous decade. We develop a quantitative model with incomplete markets and heterogeneous agents to investigate the impact of implicit mortgage guarantees and bailouts on house prices. In this environment, we...

We develop a model of monetary exchange in over-the-counter (OTC) markets and use it to study the effects of inflation on asset prices, as well as on standard measures of financial liquidity, such as the size of bid-ask spreads, trade volume, and the incentives of dealers to supply immediacy,...

This paper studies optimal disability and welfare benets with imperfect disability tagging. Labor supply is aected by the levels of both disability and welfare benets. The tagging process is implemented by social workers that may have some altruism toward claimants. All the individuals that are...

Nominal interest rates typically approach the zero-lower bound during a financial crisis. This is a constraint on optimal monetary policy: In a model with financial frictions, policy would set negative nominal interest rates in response to increases in credit spreads. We find that fiscal policy...

This paper models the dynamics of fundraising, campagin spending, and accumulation of war chest in the context of U.S. House elections. We structurally estimate the model using campaign finance data and vote share data from 1984 to 2004. A salient feature of U.S. Congressional Elections is that...

This paper analyzes the incentives to strategically default in a dynamic principal-agent model with hidden savings and one-sided limited commitment. The agent's outside option depends on the hidden savings, therefore the principal cannot observe the agent's incentives to default. The agent has a...