This paper argues that the stock market crash of 2008, triggered by a collapse in house prices, caused the Great Recession. The paper has three parts. First, it provides evidence of a high correlation between the value of the stock market and the unemployment rate in U.S. data since 1929....

I propose a consumption-based asset pricing model that jointly explains the high equity premium, the counter-cyclical behaviour of stock returns, the upward-sloping term structure of interest rates and the downward-sloping term structure of equity. The driving forces behind these results are...

This paper provides new theory and evidence on the relationship between ability and entrepreneurship. I show that there is a U-shaped relationship between the probability of entrepreneurship and both a person's schooling and wage when employed. This pattern can be explained in a model of...

We provide small noise expansions for the value function and decision rule for the recursive risk-sensitive preferences specified by Hansen and Sargent (1995), Hansen et al. (1999), and Tallarini (2000). We use the expansions (1) to provide a fast method for approximating solutions of dynamic...

Motivated by the empirical fact that parents with more human capital spend more time teaching and taking care of their children, we develop and estimate a theoretical model in which altruistic parents pass their human capital on in two ways: goods investment and time investment. Based on the...

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...

This paper explores convergence in higher-order beliefs – otherwise called eductive stability – when coordination is sequential, that is, when each agent of a given type fixes his own actions after observing the ones of earlier types in a given order. The presence of sequential types...

This paper resolves the sectoral comovement problem between nondurable and durable outputs that arises in response to a monetary shock in a two-sector sticky price model with flexibly priced durable goods. We analytically demonstrate that the non-separability between aggregate consumption and...