This paper proposes and tests a theory of credit-driven asset bubbles which are neutral in their real effects. When a lender such as a government, central bank, or banking sector is willing to lend infinitely against collateral, explosive asset bubbles can form which exactly offset a bubble in...

Why are empirically observed tariffs so much lower than theoretically calculated Nash-equilibrium tariffs? We argue that this gap can be narrowed by using a dynamic model instead of a static model. This approach has two advantages. (i) It allows us to take account of the transitional process...

In this paper, we build a framework which can generate endogenous fluctuations in downpayment requirements. We extend the model of Kiyotaki and Moore (1997) by considering an environment, in which savers can keep their anonymity but borrowers cannot. This allows lenders to punish defaulting...

This chapter surveys the literature on housing in macroeconomics. We first collect facts on house prices and quantities in both the time series and the cross section of households and housing markets. We then present a theoretical model of frictional housing markets with heterogeneous agents...

How should monetary policy be optimally designed in an environment with high degrees of financial globalization? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement....

This paper employs a stylized New Keynesian DSGE model for a monetary union to analyze whether cyclical inflation differentials can be explained by cross-country differences concerning the characteristics of financial markets. Our results suggest that empirically plausible degrees of...