Search Results
Working Paper
Sovereign Default: The Role of Expectations
We study a variation of the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008), and show that this variation is consistent with multiple interest rate equilibria. Some of those equilibria correspond to the ones identified by Calvo (1988), where default is likely because rates are high, and rates are high because default is likely. The model is used to simulate equilibrium movements in sovereign bond spreads that resemble sovereign debt crises. It is also used to discuss lending policies similar to the ones announced by the European Central Bank in 2012.
Working Paper
Monetary Policy, Residential Investment, and Search Frictions: An Empirical and Theoretical Synthesis
Using a factor-augmented vector autoregression (FAVAR), this paper shows that residential investment contributes substantially to GDP following monetary policy shocks. Further, it shows that the number of new housing units built, not changes in the sizes of existing or new housing units, drives residential investment fluctuations. Motivated by these results, this paper develops a dynamic stochastic general equilibrium (DSGE) model where houses are built in discrete units and traded through searching and matching. The search frictions transmit shocks to housing construction, making them ...
Working Paper
Explaining Contract Heterogeneity in the Credit Card Market
Administrative data are used to establish patterns in contract terms, usage, and default rates of anonymized individual credit card accounts. The canonical heterogeneous-agent macro model is extended with a competitive credit card industry and ex-ante heterogeneity to explain these facts, including that the spread on card interest rates is several multiples of default rates. Some model implications of general interest are: (i) a 10 percent cap on credit card interest rates, as proposed in recent legislation, reduces credit limits for risky borrowers and is welfare reducing for them, and (ii) ...