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Sovereign risk and firm heterogeneity
Bai, Yan; Arellano, Cristina; Bocola, Luigi (2017-03-22)
This paper studies the recessionary effects of sovereign default risk using firm-level data and a model of sovereign debt with firm heterogeneity. Our environment features a two-way feedback loop. Low output decreases the tax revenues of the government and raises the risk that it will default on its debt. The associated increase in sovereign interest rate spreads, in turn, raises the interest rates paid by firms, which further depresses their production. Importantly, these effects are not homogeneous across firms, as interest rate hikes have more severe consequences for firms that are in need ...
Staff Report , Paper 547

Report
A Demand System Approach to Asset Pricing
Yogo, Motohiro; Koijen, Ralph S. J. (2015-04-17)
This Staff Report was previously titled "An Equilibrium Model of Institutional Demand and Asset Prices." {{p}} We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings data. The equilibrium price vector is uniquely determined by market clearing, which equates the supply of each asset to aggregate demand. We estimate the model on U.S. stock market data by instrumental variables, under an identifying assumption that allows for price impact. The model sheds light on the role of institutions in stock market ...
Staff Report , Paper 510

Report
Comments on price indexes and inflation
Supel, Thomas M. (1971)
Staff Report , Paper 6

Report
On the Nature of Entrepreneurship
Bhandari, Anmol; Kass, Tobey; May, Thomas J.; McGrattan, Ellen R.; Schulz, Evan (2025-07-08)
This paper provides insights into the nature of entrepreneurship using a novel panel dataset based on U.S. administrative data from the Internal Revenue Service and the Social Security Administration. These data are used to analyze patterns of income growth and determinants of entrepreneurial choice for a large population of business owners. Earlier studies relying on household survey data have been limited by small samples, short panels, and income top-coding and, as a result, have focused on the typical self-employed individual rather than the typical dollar earned in self-employment. ...
Staff Report , Paper 670

Report
Gambling for redemption and self-fulfilling debt crises
Conesa, Juan Carlos; Kehoe, Timothy J. (2012)
We develop a model for analyzing the sovereign debt crises of 2010?2012 in the Eurozone. The government sets its expenditure-debt policy optimally. The need to sell large quantities of bonds every period leaves the government vulnerable to self-fulfilling crises in which investors, anticipating a crisis, are unwilling to buy the bonds, thereby provoking the crisis. In this situation, the optimal policy of the government is to reduce its debt to a level where crises are not possible. If, however, the economy is in a recession where there is a positive probability of recovery in fiscal ...
Staff Report , Paper 465

Report
A Framework for Studying the Monetary and Fiscal History of Latin America, 1960–2017
Kehoe, Timothy J.; Sargent, Thomas J.; Nicolini, Juan Pablo (2020-07-21)
We develop a conceptual framework for analyzing the interactions between aggregate fiscal policy and monetary policy. The framework draws on existing models that analyze sovereign debt crises and balance-of-payments crises. We intend this framework as a guide for analyzing the monetary and fiscal history of a set of eleven major Latin American countries—Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela—from the 1960s until now.
Staff Report , Paper 607

Report
The Monetary and Fiscal History of Brazil, 1960-2016
Kehoe, Patrick J.; Ayres, Joao Luiz; Guillen, Diogo; Garcia, Marcio (2018-12-20)
Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period ...
Staff Report , Paper 575

Report
The Risk of Becoming Risk Averse: A Model of Asset Pricing and Trade Volumes
Atkeson, Andrew; Alvarez, Fernando (2018-12-31)
We develop a new general equilibrium model of asset pricing and asset trading volume in which agents? motivations to trade arise due to uninsurable idiosyncratic shocks to agents? risk tolerance. In response to these shocks, agents trade to rebalance their portfolios between risky and riskless assets. We study a positive question ? When does trade volume become a pricing factor? ? and a normative question ? What is the impact of Tobin taxes on asset trading on welfare? In our model, economies in which marketwide risk tolerance is negatively correlated with trade volume have a higher risk ...
Staff Report , Paper 577

Report
Trend and cycle in bond premia
Piazzesi, Monika; Schneider, Martin (2009)
Common statistical measures of bond risk premia are volatile and countercyclical. This paper uses survey data on interest rate forecasts to construct subjective bond risk premia. Subjective premia are less volatile and not very cyclical; instead they are high, only around the early 1980s. The reason for the discrepancy is that survey forecasts of interest rates are made as if both the level and the slope of the yield curve are more persistent than under common statistical models. The paper then proposes a consumption based asset pricing model with learning to explain jointly the difference ...
Staff Report , Paper 424

Report
Liquidity Traps and Monetary Policy: Managing a Credit Crunch: Online Appendix
Nicolini, Juan Pablo; Buera, Francisco J. (2017-02-02)
Staff Report , Paper 541

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