Risk Aversion, the Labor Margin,
and Asset Pricing in DSGE Models • Swanson • 2009-26
In dynamic stochastic general equilibrium (DSGE) models, the househol's labor margin as well as consumption margin affects Arrow-Pratt risk aversion. This paper derives simple, closed-form expressions for risk aversion that take into account the household's labor margin. Ignoring the labor margin can lead to wildly inaccurate measures of the household's true attitudes toward risk. We show that risk premia on assets computed using the stochastic discount factor are proportional to Arrow-Pratt risk aversion,
so that measuring risk aversion correctly is crucial for understanding asset prices. Closed-form expressions for risk aversion in DSGE models with generalized recursive preferences and internal and external habits are also derived.
A Theory of Banks, Bonds, and the Distribution of Firm Size • Russ • Valderrama • 2009-25
We draw on stylized facts from the finance literature to build a model where altering the relative costs of bank and bond financing changes the entire distribution of firm size, with implications for the aggregate capital stock, output, and welfare. Reducing transactions costs in the bond market increases the output and profits of mid-sized firms at the expense of both
the largest and smallest firms. In contrast, reducing the frictions involved in bank lending promotes the expansion of the smallest firms while all other firms shrink, even as it increases the profitability of both small and mid-size firms. Although both policies increase aggregate output and welfare, they have opposite effects on the extensive margin of production-promoting bond issuance causes exit while cheaper bank credit induces entry. When reducing transactions costs in one market, the resulting increase in output and welfare are largest when transactions costs in the other market are very high.
The Role of Capital Service-Life in a Model with Heterogenous Labor and Vintage Capital • Marquis • Tantivong • Trehan • 2009-24
We examine how the economy responds to both disembodied and embodied technology shocks in a model with vintage capital. We focus on what happens when there is a change in the number of vintages of capital that are in use at any one time and on what happens when there is a change in the persistence of the shocks hitting the economy. The data suggest that these kinds of changes took place in the U.S. economy in the 1990s, when the pace of embodied technical progress appears to have accelerated. We find that embodied technology shocks lead to greater variability (of output, investment and labor allocations) than disembodied shocks of the same size. On the other hand, a decrease in the number of vintages in use at any time (such as is likely to occur when the pace of technical progress accelerates) tends to reduce the volatility of output and also to differentiate the initial response of the economy to the two shocks.
Heeding Daedalus: Optimal Inflation and the Zero Lower Bound • Williams • 2009-23
Mortgage Loan Securitization and Relative Loan Performance • Krainer • Laderman • 2009-22
A State Level Database for the Manufacturing Sector: Construction and Sources • Chirinko • Wilson • 2009-21
Mortgage Default and Mortgage Valuation • Krainer • LeRoy • 2009-20
Household Inflation Experiences in the U.S.: A Comprehensive Approach • Hobijn • Mayer • Stennis • Topa • 2009-19
Cross-Country Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure • Rose • Spiegel • 2009-18
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning • Rose • Spiegel • 2009-17
Monetary Policy Response to Oil Price Shocks • Natal • 2009-16
Welfare-Based Optimal Monetary Policy with Unemployment and Sticky Prices: A Linear-Quadratic Framework • Ravenna • Walsh • 2009-15
Foreign Entry into Underwriting Services: Evidence from Japan's "Big Bang" Deregulation • Spiegel • Lopez • 2009-14
Do Central Bank Lending Facilities Affect Interbank Lending Rates? • Christensen • Lopez • Rudebusch • 2009-13
The Welfare Consequences of Monetary Policy • Ravenna • Walsh • 2009-12
The Paradox of Declining Female Happiness • Stevenson • Wolfers • 2009-11
Survey Measures of Expected Inflation and the Inflation Process • Trehan • 2009-10
The International Dimension of Productivity and Demand Shocks in the U.S. Economy • Corsetti • Dedola • Leduc • 2009-09
The Effect of an Employer Health Insurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidence from Hawaii • Buchmueller • DiNardo • Valletta • 2009-08
Beyond Kuznets: Persistent Regional Inequality in China • Candelaria • Daly • Hale • 2009-07
The Olympic Effect • Rose • Spiegel • 2009-06
What Do We Know and Not Know about Potential Output? • Basu • Fernald • 2009-05
Unemployment Dynamics in the OECD • Elsby • Hobijn • Sahin • 2009-04
CONDI: A Cost-of-Nominal-Distortions Index • Eusepi • Hobijn • Tambalotti • 2009-03
EAD Calibration for Corporate Credit Lines • Jimenez • Lopez • Saurina • 2009-02
Sources of the Great Moderation: Shocks, Friction, or Monetary Policy? • Liu • Waggoner • Zha • 2009-01
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