We document that even though the normal distribution provides a good approximation to GDP fluctuations, it severely underpredicts “macroeconomic tail risks,” that is, the frequency of large economic downturns. Using a multi-sector general equilibrium model, we show that the interplay of...

We investigate whether a model with a time-varying probability of economic disaster can explain the pricing of collateralized debt obligations, both prior to and during the 2008-2009 financial crisis. Namely, we examine the pricing of tranches on the CDX, an index of credit default swaps on...

This paper studies asset pricing and labor market dynamics in a setting in which idiosyncratic risk in human capital is not fully insurable. Firms use long-term contracts to provide insurance to workers, but neither side can fully commit; furthermore, owing to costly and unobservable retention...

A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This...

This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the line of those proposed by Rietz (1988), Barro (2006}, Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require...

This paper provides technical documentation to accompany the NBER manufacturing productivity (MP) database. The database contains information on 450 4-digit manufacturing industries for the period 1958 through 1991. The data are compiled from various official sources, most notably the Annual...

School systems regularly use student assessments for accountability purposes. But, as highlighted by our conceptual model, different configurations of assessment usage generate performance-conducive incentives of different strengths for different stakeholders in different school environments. We...

A more powerful version of the ADF test and a test that has trend stationarity as the null are applied to U.S. GNP. Simulated critical values generated from plausible trend and difference stationary models are used in order to minimize possible finite sample biases. The discriminatory power of...

This paper provides a unified framework for interpreting a wide range of interactions models which have appeared in the economics literature. A formalization taken from the statistical mechanics literature is shown to encompass a number of socioeconomic phenomena ranging from out of wedlock...

No, and maybe not. [additional text from author's introduction] To us, the possibility of providing a compelling case that real GMP is either trend or difference stationary seems extremely small, certainly on the basis of post-war data. This is because there is only one difference between these...