The optimal investment policy for a standard multi-period mean–variance model is not time-consistent because the variance operator is not separable in the sense of the dynamic programming principle. With a nested conditional expectation mapping, we develop an investment model with time...

We develop an agent-based model in which heterogeneous and boundedly rational agents interact by trading a risky asset at an endogenously set price. Agents are endowed with balance sheets comprising the risky asset as well as cash on the asset side and equity capital as well as debt on the...

We introduce a heterogeneous agent asset pricing model in continuous-time to show that, although trend chasing, switching and herding all contribute to market volatility in price and return and to volatility clustering, their impacts are different. The fluctuations of the market price and return...

We propose a double auction mechanism for the exchange of leveraged assets and bonds in an agent based model. In this framework we validate recent results in general equilibrium theory about endogenous leverage and its consequences for asset pricing. We find that the institutional details of...

Empirically, ADF tests fail to reject the null hypothesis that sales are I(1). We build a model of inventory behavior that incorporates permanent sales shocks. Analytically, the model with I(1) sales implies that the variance ratio (of log production to log sales) is one in the long run,...

Standard real business cycle models are often unable to replicate three empirical facts: positive output in response to good news, stochastic volatility of macro variables, and asymmetric business cycles. This paper proposes a unified basis for understanding these facts in a tractable dynamic...

We establish explicit socially optimal rules for an irreversible investment decision with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic interpretations for three models of demand (arithmetic...

This paper assesses various capital and labor adjustment costs functions estimating a general equilibrium framework with Bayesian methods using US aggregate data. The estimation finds that the adjustment costs are convex in both capital and labor and allowing for their joint interaction is...

This paper studies the conditions under which an IT revolution may occur and have permanent effects on long-term growth. To this end, we construct a multi-sectoral growth model with endogenous embodied technical progress. The R&D sector expands the range of softwares. The capital sector produces...

We interpret the marginal welfare cost of capital income taxes as the present discounted value of consumption distortions. Such an asset market interpretation emphasizes the importance of the interest rate used to value future distortions, especially in the presence of uncertainty. We find that...