This paper presents a dynamic portfolio credit model following the regulatory framework, using macroeconomic and latent risk factors to predict the aggregate loan portfolio loss in a banking system. The latent risk factors have three levels: global across the entire banking system,...

This paper explores the relationship between volatility and welfare. Even though households prefer smooth streams of consumption and leisure, welfare can be increasing in the volatility of an exogenous driving force if factor supply is sufficiently elastic. We provide some analytical results for...

An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of...

We contribute to a recent literature on the normalization, calibration and estimation of CES production functions. The problem arises because CES ‘share’ parameters are not in fact shares, but depend on underlying dimensions—in other words they are ‘dimensional constants’. It follows...

This paper investigates the properties of distortions that manifest themselves as wedges in the equilibrium conditions of the neoclassical growth model across a sample of 22 OECD countries for the 1970–2011 period. The quantitative relevance of each wedge and its robustness in generating...

This paper develops and estimates a stochastic general equilibrium model with capital maintenance, which affects endogenously the depreciation rate of capital. The estimate of maintenance series is found to track survey-based measures for Canada quite closely and to generate the procyclical...

We study the impact of two-sided nominal shocks in a dynamic, equilibrium macroeconomic model. Goods complementarity differs across sectors as do the costs of changing prices. Even when strategic complementarities are equal across the sectors, the systematic differences in costs of price...

This paper explores the link between the leverage of the US financial sector, of households and of non-financial businesses, and real activity. We document that leverage is negatively correlated with the future growth of real activity, and positively linked to the conditional volatility of...

We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The Value-at-Risk constraint implies that when perceived risk...

This paper investigates the expectation formation process of Japanese stock market professionals. By utilizing a monthly forecast survey dataset on the TOPIX distributed by QUICK Corporation, we sort forecasters into buy-side and sell-side professionals. We empirically demonstrate that the...