We analyze the implications of financial openness to macroeconomic volatility in a small open economy. The volatility of major macroeconomic aggregates shows non-monotonic pattern with respect to the degree of financial openness in the model without domestic financial frictions. The introduction of domestic financial frictions makes the volatility patterns flatter. Our model explains the lack o...

Retail certificates of deposit provide financial institutions with funds and depositors with income. Because interest rates and terms on deposits vary, understanding the reasons for the variation should help participants in this market make better decisions. This study explores interest rates and terms on deposit offerings from banks and thrifts while controlling for risk, service, and demograp...

Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a “duality” axiom which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is homogeneous of degree 1, monotonic w...

The paper presents a bivariate SVAR model including growth rates of industrial production and of stock prices. Imposing a long-run restriction à la Blanchard and Quah (1989) that excludes long-run influences of the stock market on real activity allows to decompose stock prices in a fundamental and a nonfundamental component. The results of the forecast error variance decompositions as well as o...

We build and estimate a recursive utility equilibrium model of the term structure of interest rates that prices consistently all risk factors that affect bonds. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model acco...

An important inefficiency in sovereign debt markets is debt dilution, wherein sovereigns ignore the adverse impact of new debt on the value of existing debt and, consequently, borrow too much and default too frequently. A widely proposed remedy is the inclusion of seniority clause in sovereign debt contracts: Creditors who lent first have priority in any restructuring proceedings. We incorporat...

The paper presents panel data evidence for 13 transition countries on inflation, financial development and growth. It contributes to the growth literature by showing that the transition countries conform to developed country evidence in particular with the strong negative effect of inflation on growth. It also contributes more evidence to the debate on the role of financial development. Once in...

This paper proposes an alternative explanation to recurrent hyperinflations other than bounded rationality by explicitly considering the global dynamics of an economy with credit market frictions. In this paper we show that hyperinflations are self-generated and are manifestations of the underlying global dynamic properties of an economy with perfect foresight rational agents that face credit r...

I quantify the effects of alternative student loan policies on college enrollment, borrowing behavior, and default rates in a heterogeneous model of life-cycle earnings and human capital accumulation. I find that the combination of learning ability and initial stock of human capital drives the decision to enroll in college, while parental wealth has minimal effects on enrollment. Repayment flex...