The paper introduces a portfolio-based Keynesian dynamic stochastic general disequilibrium model. It is an endogenous phase-switching macroeconomic model of risky investment where the rational expectation is applied in the financial market with three financial instruments of stocks, credits, and...

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust - and the subsequent...

Price stickiness is one of the key assumptions of New Keynesians macroeconomic models used to support monetary policy analysis and medium term macroeconomic forecasting by central banks. However, there has been little micro level evidence to back this assumption in developing countries which are...

In this paper we propose a Good Asset Purchase Plan (GAPP), as a cure for the falling U.S. housing market and a stimulus for economic recovery. The central theme of the plan is that the U.S. Government directly purchases minority shares (say, up to 20%) of good assets such as residential...

The argument made in this manuscript is that the two traditional macroeconomic tools, fiscal policy and monetary policy, are insufficient to bring back efficiently into equilibrium an economy that has had a major crisis. Both traditional macro-tools only work through the demand side, and there...

This paper shows that the effect of inflation on asset prices and real aggregates depends on the financial intermediation sector. When firms finance using nominal long-term debt issued by financial intermediaries, unexpected changes in inflation lead to a wealth transfer across sectors. Higher...

We revisit the role of long-term nominal corporate debt for the transmission of inflation shocks in the general equilibrium model of Gomes, Jermann, and Schmid (2016). We show that inaccuracies in the model solution and calibration strategy lead GJS to a model equilibrium in which nominal...

In recent weeks and months, a number of market commentators have drawn comparisons between the prevailing economic landscape and previous financial crises, episodes and events. These have ranged from talk of a new ‘Volcker Shock’ to a repeat of the 1987 stockmarket crash, the dot.com burst...

The first important economic recession in this century started in USA with the burst of real estate bubble followed by the bankruptcy of some investment and commercial banks and the collapse of capital market. The financial-banking crisis spilt over the world economy and caused the second...

This paper analyzes optimal policy responses to a global liquidity trap. The key feature of this environment is that relative prices respond perversely. A fall in demand in one country causes an appreciation of its terms of trade, exacerbating the initial shock. At the zero bound, this country...