Optimal Trend Inflation, with Henning Weber,
American Economic Review (forthcoming)
The optimal rate of steady state inflation in sticky price models is positive once one incorporates firm heterogeneity and plausible firm-level productivity trends. We provide closed-form expressions for the optimal inflation rate and estimate the optimal US inflation rate to range between 1 and 3 % per year.
Stock Price Booms and Expected Capital Gains, with Albert Marcet and Johannes Beutel, American Economic Review, Vol. 107(8), 2352–2408, 2017
Shows that variations in investors’ subjective capital gains expectations are a key driver of fluctuations in postwar US stock prices. Dropbox link to MatLab code and documentation here.
Optimal Sovereign Default (with Applications to the Greek Case), joint with Michael Grill, American Economic Journal: Macroeconomics, Vol. 9(1), pp. 128–164, 2017, working paper version
Determines a normative benchmark for optimal sovereign default in a setting in which default is costly and government bond markets are incomplete. Argues that the observed sovereign default in Greece has been too small and not timely enough. .Excel data file with Greek data and calibration
Price Level Changes and the Redistribution of Nominal Wealth Across the Euro Area, with Junyi Zhu, Journal of the European Economic Association, Vol 14(4), pp. 871-906, 2016, working paper version
Shows how unexpected price level decreases redistribute wealth across the Euro area. Determines the countries, economic sectors and households that win and lose. Stata data documentation files available here. Excel data appendix is available available here.
Stock Market Volatility and Learning, with Albert Marcet and Juan Pablo Nicolini, Journal of Finance, Vol. 71(1), pp. 33-82, 2016, working paper version
The standard consumption-based asset pricing model with time-separable preferences generates realistic amounts of stock price volatility if one allows for small deviations from rational expectations. MatLab programs here.