Many policymakers are concerned that tight financing constraints for small businesses are stalling the recovery from the Great Recession. This paper empirically assesses two agency problems that induce such financing constraints—one resulting in a “firm balance sheet channel” and one...

We estimate a DSGE model with (S,s) inventory policies. We find that (i) taking inventories into account can significantly improve the empirical fit of DSGE models in matching the standard business-cycle moments (in addition to explaining inventory fluctuations); (ii) (S,s) inventory policies...

This paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model. Taking the Smets–Wouters model as the central bank׳s approximating model, the paper׳s main findings are as follows. First, a...

We study optimal monetary policy in a New Keynesian model at the zero bound interest rate where households use cash alongside house equity borrowing to conduct transactions. The amount of borrowing is limited by a collateral constraint. When either the loan to value ratio declines or house...

We analyze an overlapping generations economy where agents interact to share liquidity risk. We show that a pure exchange economy has excessive trade in equilibrium because agents interact to rebalance their portfolios. Intergenerational financial intermediaries reduce the number of interactions...

Complex dynamic systems can undergo changes in feedbacks between system components causing a rapid and persistent shift in system behavior (“regime shifts”), and potentially reduce welfare from declining provision of important ecosystem services. In this paper, we provide an analytical...

Using laboratory experiments within a New Keynesian sticky price framework, we study the process of inflation expectation formation. We focus on adaptive learning and rational expectations contrary to the previous literature that mostly studied simple heuristics. Using a test for rational...

This paper estimates the importance of shocks to consumer misperceptions “noise shocks” for U.S. business cycle fluctuations. I embed imperfect information as in Lorenzoni (2009) into a Smets and Wouters (2007)-type DSGE model. Agents only observe aggregate productivity and a signal about...

The option to leave your current partner in response to his behavior, also known as conditional dissociation, is a mechanism that has been shown to promote the emergence and stability of cooperation in many social interactions. This mechanism, nevertheless, has always been studied in combination...

An implicit partial differential equation (PDE) method is used to determine the cost of hedging for a Guaranteed Lifelong Withdrawal Benefit (GLWB) variable annuity contract. In the basic setting, the underlying risky asset is assumed to evolve according to geometric Brownian motion, but this is...