With the Federal Funds rate approaching the zero lower bound, the U.S. Federal Reserve adopted a range of unconventional monetary policy measures known as Quantitative Easing (QE). Quantifying the impact QE has on the real economy, however, is not straightforward as standard tools such as VAR...

One of the roots of the recent global financial crisis has been seen in the design of subprime mortgage contract leading to high sensitivity of such type of loans to house price changes. The market of subprime loans, especially in the last years preceding the crisis, has been highly financed by...

This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the...

This paper investigates the risk-taking channel of monetary policy on the asset side of banks' balance sheets. We use a factor-augmented vector autoregression (FAVAR) model to show that aggregate lending standards of U.S. banks, e.g. their collateral requirements for firms, are significantly...

We examine how borrowing constraints affect monetary transmission and the trade-off of a welfare maximizing central bank. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as...

Does the mere presence of big banks affect macroeconomic outcomes? Gabaix (2011) shows that idosyncratic shocks can have aggregate effects if the distribution of firm sizes in manufacturing follows a power law distribution. Our contribution is two-fold. First, we expand the theory of granularity...

This paper presents a dynamic stochastic general equilibrium model which studies the business-cycle implications of financial frictions and liquidity risk at the bank-level. Following Holmstr m and Tirole (1998), demand for liquidity reserves arises from the anticipation of idiosyncratic...

Previous research shows that technical progress at the industry level, measured by sectoral TFP growth, is more localized in continental European countries than in Anglo-Saxon coun-tries. We use EU KLEMS data sets to decompose sectoral TFP for nine European countries by means of a Malmquist...

The standard two-sector monetary business cycle model suffers from an important deficiency. Since durable good prices are more flexible than non-durable good prices, optimising households build up the stock of durable goods at low cost after a monetary contraction. Consequently, sectoral outputs...

This paper provides an explanation why garbage as a measure of consumption implies a several times lower coefficient of relative risk aversion in the consumption-based asset pricing model than consumption based on the official National Income and Product Accounts (NIPA): Unlike garbage, NIPA...