#2009-030A "Does Money Matter in Inflation Forecasting?"
by Jane M. Binner, Peter Tino, Jonathan Tepper, Richard G. Anderson, Barry Jones, and Graham Kendall
June 2009

This paper provides the most fully comprehensive evidence to date on whether or not monetary aggregates are valuable for forecasting US inflation in the early to mid 2000s. More...

#2009-029A "Speculative Bubbles and Financial Crisis"
by Pengfei Wang, and Yi Wen
June 2009

Why are asset prices so much more volatile and so often detached from their fundamentals? Why does the burst of financial bubbles depress the real economy? More...

#2009-028A "Capital Misallocation and Aggregate Factor Productivity"
by Costas Azariadis, and Leo Kaas
June 2009

We propose a sectoral–shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, a constant production possibilities frontier, and finitely many sectors producing the same good. More...

#2009-026A "An Analytical Approach to Buffer-Stock Saving"
by Yi Wen
June 2009

The profession has been longing for closed-form solutions to consumption functions under uncertainty and borrowing constraints. This paper proposes an analytical approach to solving buffer-stock saving models with both idiosyncratic and aggregate uncertainties. More...

#2009-025A "Dynamics in Systematic Liquidity"
by Björn Hagströmer, Richard G. Anderson, Jane M. Binner, and Birger Nilsson
May 2009

We develop the principal component analysis (PCA) approach to systematic liquidity measurement by introducing moving and expanding estimation windows. We evaluate these methods along with traditional estimation techniques (full sample PCA and market average) in terms of ability to explain (1) cross-sectional stock liquidity and (2) cross-sectional stock returns. More...

#2009-024A "When does Heterogeneity Matter?"
by Yi Wen
May 2009

How do movements in the distribution of income affect the macroeconomy? Krusell and Smith (1998) analyzed this question in a neoclassical growth model, and their results show that the representative-agent assumption provides a good approximation for aggregate behaviors of heterogeneous agents. More...

#2009-022C "Financial Development and Economic Volatility: A Unified Explanation"
by Pengfei Wang, and Yi Wen
April 2009
Revised May 2009

Empirical studies showed that firm-level volatility has been increasing but the aggregate volatility has been decreasing in the US for the post-war period. This paper proposes a unified explanation for these diverging trends. More...

#2009-020A "A Simple Model of Trading and Pricing Risky Assets Under Ambiguity: Any Lessons for Policy-Makers?"
by Massimo Guidolin, and Francesca Rinaldi
April 2009

The 2007-2008 financial crises has made it painfully obvious that markets may quickly turn illiquid. Moreover, recent experience has taught us that distress and lack of active trading can jump “around” between seemingly unconnected parts of the financial system contributing to transforming isolated shocks into systemic panic attacks. More...

#2009-019B "Liquidity and Welfare in a Heterogeneous-Agent Economy"
by Yi Wen
April 2009
Revised May 2009

This paper reconsiders the welfare costs of inflation and the welfare gains from financial intermediation in a heterogeneous-agent economy where money is held as a store of value (as in Bewley, 1980). More...

#2009-018A "Numerical Simulation of Nonoptimal Dynamic Equilibrium Models"
by Zhigang Feng, Jianjun Miao, Adrian Peralta-Alva, and Manuel S. Santos
April 2009

In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. More...