I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and...

I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and...

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output...

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output...

Should monetary policymakers raise interest rates during a boom to rein in financial excesses? We theoretically investigate this question using an aggregate demand model with asset price booms and financial speculation. In our model, monetary policy affects financial stability through its impact...

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output...

A "folk theorem" originating, among others, in the work of Stiglitz maintains that competitive equilibria area always or "generically" inefficient (unless contracts directly specify consumption levels as in Prescott and Townsend, thus bypassing trading in anonymous markets). This paper...

Central banks (the Fed) and markets (the market) often disagree about the path of interest rates. We develop a model where these different views stem from disagreements between the Fed and the market about future aggregate demand. We then study the implications of these disagreements for...

We provide evidence of the stock market wealth effect on consumption by using a local labor market analysis and regional heterogeneity in stock market wealth. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and...

Should monetary policy have a prudential dimension? That is, should policymakers raise interest rates to rein in financial excesses during a boom? We theoretically investigate this issue using an aggregate demand model with asset price booms and financial speculation. In our model, monetary...