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As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and...
Persistent link: https://www.econbiz.de/10014436981
We introduce limited liability in a model with a continuum of ex ante identical agents who face aggregate and idiosyncratic income risk. These agents can trade a complete menu of contingent claims, but they cannot commit and shares in a Lucas tree serve as collateral to back up their...
Persistent link: https://www.econbiz.de/10012467553
We examine asset prices in environments where the risk-free rate lies considerably below the growth rate. To do so, we introduce a tractable model of a production economy featuring heterogeneous trading technologies, as well as idiosyncratic and aggregate risk. We show that allowing for the...
Persistent link: https://www.econbiz.de/10014436963
We analyze efficient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation, and we treat the contracting...
Persistent link: https://www.econbiz.de/10012479191
Using a novel data set containing all bids by all bidders for Mexican government bonds from 2001 to 2017, we demonstrate that asymmetric information about default risk is a key determinant of primary market bond yields. Empirically, large bidders do not pay more for bonds than the average bidder...
Persistent link: https://www.econbiz.de/10012482676
How should governments structure primary sovereign bond markets when investors face asymmetric uncertainty about default risk and total demand? Standard protocols either use uniform prices for all investors, or price discriminate based on bid prices ("pay as bid"). Uniform pricing encourages...
Persistent link: https://www.econbiz.de/10015361492
We develop a theory of information spillovers in sovereign bond markets in which investors can acquire information about default risk before trading in primary and secondary markets. If primary markets are structured as multi-unit discriminatory-price auctions, an endogenous winner's curse leads...
Persistent link: https://www.econbiz.de/10013334434
For decades credit rating agencies were viewed as trusted arbiters of creditworthiness and their ratings as important tools for managing risk. The common narrative is that the value of ratings was compromised by the evolution of the industry to a form where issuers pay for ratings. In this paper...
Persistent link: https://www.econbiz.de/10014322691
Our paper examines the impact of heterogeneous trading technologies for households on asset prices and the distribution of wealth. We distinguish between passive traders who hold fixed portfolios of stocks and bonds, and active traders who adjust their portfolios to changes in expected returns....
Persistent link: https://www.econbiz.de/10012465060
This paper extends the methodology developed in Chien, Cole and Lustig (2011 & 2012) (hereafter CCL2011 and CCL2012, respectively) to analyze and compute the equilibria of economies with heterogeneous agents who have different asset trading technologies and are subject to both aggregate and...
Persistent link: https://www.econbiz.de/10012458339