China has been experiencing large scale rural-urban migration and economic growth in the urban private sector since the early 1990s. At the same time, income inequality has increased substantially. We estimate separate labor income processes for different groups of workers. Rural workers face...

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...

We find that precautionary saving accounts for only a modest (less than 3 percentage point) increase in the aggregate saving rate, at least for moderate and empirically plausible parameter values. This finding is based on a quantitative analysis of a reasonably parameterized version of the...

This paper examines the extent to which the equity premium puzzle can be resolved by taking account of the fact that stockholders bear a disproportionate share of output uncertainty. We do this in the context of a non-Walrasian RBC model where risk reallocation is justified by borrowing...

This paper develops a dynamic continuous-time model in which international risk sharing can yield substantial welfare gains through its positive effect on expected consumption growth. The mechanism linking global diversification to growth is an attendant world portfolio shift from safe, but...