This paper studies the problem of an agent who wants to prevent the state from exceeding a critical threshold. Even though the agent is presumed to know the model, the optimal policy is computed by solving a conventional robust control problem. That is, robustness is induced here by objectives...

This paper proposes a perturbation-based approach to implement the idea of endogenous financial risk in a standard DSGE macro-model. Recent papers, such as Mendoza (2010), Brunnermeier and Sannikov (2012) and He and Krishnamurthy (2012), that have stimulated the research field on endogenous risk...

We introduce spatial spillovers as an externality in the production function of competitive firms operating within a finite spatial domain under adjustment costs. Spillovers may attenuate with distance and the overall externality could contain positive and negative components with the overall...

We develop an endogenous growth model featuring environmental externalities, abatement R&D, and market imperfections. We compare the economic performances under three distinct regimes that encompass public abatement, private abatement without tax recycling, and private abatement with tax...

In this study, we develop a search-and-matching monetary growth model to analyze the effects of inflation on economic growth and social welfare by introducing endogenous economic growth via capital externality into a two-sector search-and-matching model. We find that the channel through which...

The paper examines the effect of trend productivity growth on the determinacy and learnability of equilibria under alternative monetary policy rules. Under zero trend inflation we show that the economic structure is isomorphic to that of Bullard and Mitra (2002) and show that under a policy rule...

This paper presents a dynamic portfolio credit model following the regulatory framework, using macroeconomic and latent risk factors to predict the aggregate loan portfolio loss in a banking system. The latent risk factors have three levels: global across the entire banking system,...

This paper compares the properties of interest-rate rules such as simple Taylor rules and rules that respond to price-level fluctuations (called Wicksellian rules) in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better than...

The behavior and stability of over-the-counter markets is of central concern to regulators. Little is known, however, about how the structure of these markets determine their properties. In this paper we consider an over-the-counter market populated by boundedly rational heterogeneous traders in...

In the paper we show – using standard approaches, general equilibrium modeling and the assumption of complete rationality – that the macroeconomic environment is endogenous and is indeterminate. Specifically, it is argued – without resorting to sunspot type arguments – that microeconomic...