The authors study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S....

We construct an integrated assessment model with multiple energy sources—two fossil fuels and green energy—and use it to evaluate ranges of plausible estimates for the climate sensitivity, as well as for the sensitivity of the economy to climate change. Rather than focusing explicitly on...

We construct an integrated assessment model with multiple energy sources - two fossil fuels and "green energy" - and use it to evaluate ranges of plausible estimates for the climate sensitivity as well as for the sensitivity of the economy to climate change. Rather than focusing on uncertainty...

This paper considers an asset market where investors have private information not only about asset payoffs, but also about their own exposure to an aggregate risk factor. In equilibrium, rational investors disagree about asset payoffs: Those with higher exposure to the risk factor are...

The distinguishing feature of natural-catastrophe risk is claimed to be aggregate risk. Because such risk is encompassed in the general competitive model, it seems to pose no new theoretical challenge. However, that model has markets contingent on exogenous events, while the actual economy seems...

Banks have historically provided mutual insurance against asset risk, where the insurance arrangement itself was characterized by limited enforcement. This paper shows that a non-trivial interaction between asset and liquidity risk plays a crucial role in shaping optimal banking arrangements in...

Using U.S. data it is shown that as the stock market goes into a period of high volatility, nondurables consumption is unaffected but durables consumption falls substantially. It is argued that a plausible explanation for this is that consumers face irreversibilities when adjusting their...