We present an estimated DSGE model of stock market bubbles and business cycles using Bayesian methods. Bubbles emerge through a positive feedback loop mechanism supported by self-fulfilling beliefs. We identify a sentiment shock which drives the movements of bubbles and is transmitted to the...

This paper introduces endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble exists through a positive feedback loop mechanism. The collapse of the bubble tightens the credit...

This paper develops an analytically tractable Bewley model of money featuring capital and financial intermediation. It is shown that when money is a vital form of liquidity to meet uncertain consumption needs, the welfare costs of inflation can be extremely large. With log utility and parameter...

Government spending plays an emportant role in determining economic performance in China. As an example, China's rapid recovery during the recent world financial crisis was due to its aggressive 4-trillion RMB government stimulus program. However, China's government spending programs are also...

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher...

We quantitatively investigate the capacity to collect revenue when the government is constrained to use non-linear (progressive) income taxes. We develop a life-cycle growth model with individual heterogeneity and endogenous labor supply, and explore the degree of tax progressivity that can be...

We present new data documenting medieval Europe's "Commercial Revolution" using information on the establishment of markets in Germany. We use these data to test whether medieval universities played a causal role in expanding economic activity, examining the foundation of Germany's first...

We estimate the full model using Bayesian methods and allow for both determinate and indeterminate equilibria. Our estimates of the resulting equilibria during the Great Inflation of the 1970s reveal that the Fed’s optimal policy response was seen by the private sector as leading to an...

This paper develops a methodology for predicting the impact of trade liberalization on exports by industry (2-digit ISIC) based on the distribution of exports before the reform by product (5-digit SITC). Using the results of Kehoe and Ruhl (2009) that much of the growth in trade after trade...

This paper studies health insurance over the life-cycle with adverse selection to analyze the welfare implications of the Aordable Care Act of 2010 that targets at improving the access to health insurance for the uninsured. For this purpose, this study develops a life-cycle model following...