We consider a neoclassical economy where households derive utility from holding wealth. We show that, under some conditions, there can be rational bubbles. Hence, we provide a microfoundation for bubbles that relies on a frictionless infinite-horizon economy without any heterogeneity across...

When a government considers a subsidy for an underdeveloped region, it has several options: the subsidies can be for land, wages, employment, or production. While land subsidy is a lump-sum transfer, the others are meant to promote local production or worker immigration. Under full employment,...

Using a dynamic optimization model of a monetary economy where persistent unemployment can prevail, we examine the effects of environmental policies on consumption and pollution emissions in a full-employment and a stagnant economy. If full employment prevails, environmental policies such as...

In this paper, we show that underemployment and not necessarily high unemployment becomes the main measure of economic slack under secular stagnation. Specifically, persistent underemployment occurs in the search and matching model, provided that households derive utility from holding wealth,...

In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and post-crisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of...

Previous studies have argued that output growth in advanced economies declined during the Great Recession and remained low afterward. This paper proposes a model to explain this slowdown in output growth. We incorporate wealth preferences and downward nominal wage rigidity into a standard...

This paper provides a dynamic game of market entry to illustrate entry dynamics in an uncertain market environment. Our model features both private learning about the market condition and market competition, which give rise to the first-mover and second-mover advantages in a unified framework....

Timing of market entry is one of the most important strategic decisions a firm must make, but its decision process becomes convoluted with information and payoff spillovers. The threat of competition pushes firms to enter earlier to preempt their rivals while the possibility of learning make...

This paper provides a general analysis of signaling under double-crossing preferences with a continuum of types. There are natural economic environments where the indifference curves of two types cross twice, such that the celebrated single-crossing property fails to hold. Equilibrium exhibits a...

The class of double-crossing preferences, where signaling is cheaper for higher types than for lower types at low signaling levels and the opposite is true at high signaling levels, underlines the phenomenon of countersignaling. We show that under the D1 refinement, the equilibrium signaling...