We characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods. First, we show that equilibrium debt limits must satisfy a simple condition that...

We characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods. First, we show that equilibrium debt limits must satisfy a simple condition that...

We develop a dynamic nonlinear, noisy REE model of credit risk pricing un- der dispersed information that can theoretically and quantitatively account for the credit spread puzzle. The first contribution is a sharp analytical characteri- zation of the dynamic REE equilibrium and its comparative...

We analyze investment incentives and risk-taking by firms when equity markets aggregate information with noise. Noisy information aggregation drives a wedge between the expected social value and the market value of investments, inducing inefficient rent-seeking by incumbent shareholders and...

We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. With only minimal restrictions on security payoffs and trader preferences, noisy aggregation of heterogeneous information drives a systematic wedge...

about fundamentals based on their own cash flows (revenues and wages). We show that in a model with realistic levels of product-level price dispersion, the firms’ inference about aggregate shocks is very gradual, yet in the aggregate prices adjust rapidly in response to aggregate nominal...

This paper studies an environment in which information aggregation interacts with investment decisions. The first contribution of the paper is to develop a tractable model of such interactions. The second contribution is to solve the model in closed form and derive a series of implications that...

This is the abstract

Can informational frictions serve to amplify the real effects generated by other sources of nominal rigidity? We attempt to answer this question by augmenting an incomplete information model by adding different forms of nominal stickiness. We investigate the implications of different assumptions...