I study the dynamics of asset prices in an economy in which investors choose whether to hold diversified or concentrated portfolios of risky assets. The latter are valuable, as they increase the productivity of the correspond- ing enterprises. I capture the tradeoff between risk sharing and...

We propose a theory of inattention solely based on preferences, absent any cognitive limitations, or external costs of acquiring information. Under disappointment aversion, information decisions and risk attitude are intertwined, and agents are intrinsically information averse. We illustrate...

We argue that buyout waves form in response to fluctuations in aggregate discount rates. In our model, discount rates alter the present value of cash flow improvements and the illiquidity premium demanded by buyout investors. We confirm our predictions empirically. Overall deal activity varies...

In this essay we postulate a number of theoretical hypotheses allowing one to resolve in some degree the following two prediction paradoxes: (1) why simple linear models often have an advantage in predictive power over more complex nonlinear models that lead to a better in-sample fit; (2) why...

We document the behavior of trade prices during the Great Trade Collapse of 2008- 2009 using transaction-level data from the U.S. Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade...

We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a dynamic New Keynesian open economy environment. We perform the analysis under...

While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and industries, more recent theories of firm heterogeneity point to the impact of trade on wage dispersion within occupations and industries. Using linked employer-employee data for Brazil, we show...

Conventional wisdom suggests that the optimal policy response to rising income inequality is greater redistribution via higher marginal tax rates and more progressive tax schedules. In this paper we study an economy in which trade is associated with a costly entry into the foreign market, so...

Are quantitatively important real rigidities present in the data? The answer appears to depend on what data one looks at. Recent studies using price data underlying US CPI index provide evidence suggesting a limited role for real rigidities. Evidence from international prices, however, points...