Is the observed large increase in consumer indebtedness since the 1980s beneficial for U.S. consumers? This paper quantitatively studies the macroeconomic and welfare implications of relaxing borrowing constraints when consumers exhibit a hyperbolic discounting preference. The model can capture two contrasting views: the positive view, which links increased indebtedness to financial innovation ...

We study the effects of firm’s credit condition on (1) labor market performance and (2) the inflation and unemployment relationship, in a new monetarist model. Better credit condition has positive impact on labor market as firms save on financing cost, improve profitability, and thus create more vacancies. Inflation increases the financing cost and thus discourages job creation. On the other ha...

This paper extends Nolan and Thoenissen (2009), hence NT, model with an explicit financial intermediary that transfer funds from households to entrepreneurs subject to a well defined loan production function. The loan productivity shock is treated as the supply side financial disturbance. Together with NT’s net worth shock that resembles the credit demand perturbation, both of the two-sided sho...

We study the reaction of commercial banks to external macroeconomic shocks using panel data from over 120 banks in Argentina for the period 1996-1999. We show that all banks reduce lending when systemic risk increases and that this reaction is driven by credit supply decisions by banks, beyond and above the impact of reduced credit demand or increased regulatory pressure. However, the underlyin...

We extend back to 1890 the volatility implied by options index (VIX), available only since 1986, using the frequency of words on the front-page of the Wall Street Journal. News implied volatility (NVIX) captures well the disaster concerns of the average investor over this longer history. NVIX is particularly high during stock market crashes, times of policy-related uncertainty, world wars and f...

The part of credit spread that is not explained by corporate credit risk forecasts future economic activity. I show that the link with aggregate business risk and bond liquidity risk explains this finding. Once I project spreads on these two risk factors, which are readily measurable with the daily frequency, in addition to corporate credit risk, the forecasting power of the residual spread red...

We propose a novel estimator for the amount of international risk sharing that depends exclusively on asset returns data. In particular, our estimator has a nonparametric flavor in that it makes no parametric assumption on preferences and on the stochastic process that governs the dynamics of asset returns. This is in contrast with the existing estimators in the literature that either assume a ...

We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in …nancial markets. We embed this view in a standard model of the …nancial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp reces...

This paper investigates risk premiums embedded in commodity convenience yields, i.e., returns on convenience-claim investments. The analysis is conducted in two steps. First, monthly convenience yields are extracted from a broad sample of commodity futures by using a three-factor model. Second, a multi-factor asset pricing model with conditional betas is estimated to determine risk premiums emb...

We use information contained in yield spreads to recover investors’ ex ante required rates of return on corporate securities, and then use these ex ante returns to study the pricing of risky assets. Differently from the standard approach, our asset pricing tests do not rely on the use of ex post average equity returns as proxies for expected equity returns. We Þnd that: (i) the market beta play...