We append the expectation of a monetary-fiscal reform into a standard New Keynesian model. If a reform occurs, monetary policy will temporarily aid debt sustainability through a temporary burst in inflation. The anticipation of a possible reform links debt levels with inflation expectations. As...

This paper develops a complete-market production economy with heterogeneous beliefs about TFP growth. Hiring occurs before TFP is known and is, therefore, risky (operational leverage). The firm's discount factor depends on a wealth-weighted average of investors' beliefs. Waves of optimism...

We study the relationship between funding liquidity and the valuation of mortgage-backed securities. Most of the financing for mortgage-backed securities occurs through a trade known as a dollar roll, the simultaneous sale and purchase of forward contracts on mortgage-backed securities that is...

In many frictionless asset-pricing models, investor demand curves are virtually flat. Koijen and Yogo (2019), in contrast, estimate surprisingly inelastic demand. In this paper, we investigate the role of information in addressing this puzzle. In a noisy rational expectation equilibrium model,...

In over-the-counter (OTC) markets, customers search for counterparties. Little is known about this process, however, because existing data is comprised of transaction records, which are only informative about the end of a successful search. Leveraging data from the leading trading platform for...

Fluctuations in investor demand dramatically affect firms' valuation and access to capital. To quantify their real impact, we develop a dynamic investment model that endogenizes both the demand- and supply-side of capital. Strong investor demand elevates equity prices and dampens price impacts...

The recent debate about the falling share of labor income has brought attention to the trends in income shares, but less attention has been devoted to their variability. In this paper, we analyze how their fluctuations can be insured against between workers and capitalists, and the corresponding...