We survey literature on ambiguity with an emphasis on recent applications in macroeconomics and finance. Like risk, ambiguity leads to cautious behavior and uncertainty premia in asset markets. Unlike risk, ambiguity can generate first order welfare losses. As a result, precautionary behavior...

This paper reconsiders the role of foreign investors in developed country equity markets. It presents a quantitative model of trading that is built around two new assumptions about investor sophistication: (i) both the foreign and domestic populations contain investors with superior information...

This paper studies a modern monetary economy: trade in both goods and securities relies on money provided by intermediaries. While money is valued for its liquidity, its creation requires costly leverage. Inflation, security prices and the transmission of monetary policy then depend on the...

The Ellsberg paradox suggests that people's behavior is different in risky situations - when they are given objective probabilities - from their behavior in ambiguous situations - when they are not told the odds (as is typical in financial markets). Such behavior is inconsistent with subjective...

The Ellsberg paradox suggests that people behave differently in risky situations -- when they are given objective probabilities -- than in ambiguous situations when they are not told the odds (as is typical in financial markets). Such behavior is inconsistent with subjective expected utility...

"The Ellsberg paradox suggests that people behave differently in risky situations -- when they are given objective probabilities -- than in ambiguous situations when they are not told the odds (as is typical in financial markets). Such behavior is inconsistent with subjective expected utility...

In modern monetary economies, most payments are made with inside money provided by payment intermediaries. This paper studies interest rate dynamics when payment intermediaries value short bonds as collateral to back inside money. We estimate intermediary Euler equations that relate the short...