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...

We develop a deep learning model to detect emotions embedded in press conferences after the Federal Open Market Committee meetings and examine influence of detected on financial markets. find that, controlling for Reserve’s actions sentiment policy texts, positive tone voices Reserve chairs leads significant increases share prices. Other variables also respond vocal cues from chairs. Hence, how...

We show that during the Great Recession, more-flexible sectors paid lower sectoral bond spreads. rationalize this fact with a model input-output linkages, heterogeneous elasticities, and binding working capital constraints in use of intermediates. difference flexibility between upstream downstream is key for determining role linkages amplifying or mitigating distortions. Calibrating to US econo...

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...

Many asset markets exhibit slow booms and sudden crashes. This pattern is explained by an endogenous flow of information. In the model, agents undertake more economic activity in good times than in bad. Economic activity generates public information about the state of the economy. If the economic state changes when times are good and information is abundant, asset prices adjust quickly and a su...

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...

We investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks. We define fundamental volatility as the volatility that would arise from an economy made entirely of idiosyncratic sectoral or firm-level shocks. Fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half-century. I...