Keynesian model. Relative to Representative Agent (RANK) models, our framework introduces a precautionary-savings channel, as … households in both countries face uninsurable income risk, and a real-income channel, as households have heterogeneous marginal … propensities to consume (MPC). While both channels amplify the size of spillovers/spillbacks, only precautionary savings can change …

We study general equilibrium asset prices in a multi-period endowment economy when agents' risk aversion is allowed to … depend on the maturity of the risk. We find horizon-dependent riskaversion preferences generate a decreasing term structure … of risk premia if and only if volatility is stochastic. Our model can thus justify the recent empirical results on the …

weaker institutions, systemic risk depends critically on the financial health of stronger institutions in the contagion chain …

the bank sector is highly procyclical, the leverage of the nonbank financial sector is acyclical. We propose a theory of a … debt to households and face risk-based capital constraints, which leads to procyclical leverage. Households can also … financialsector assets. The procyclicality of the banking sector is due to its risk-based funding constraints, which give a central …