Department of Economics
Landau Economics Building
schneidr at stanford dot edu
Ambiguity in macro & finance
Credit & money
Interest rate & credit risk
Learning in markets
Ambiguity in macro & finance
Recursive multiple priors, with Larry Epstein
Journal of Economic Theory, 113(1), 32-50 (2003)
Axiomatizes dynamically consistent model of intertemporal decision making under ambiguity. Shows how to update sets of priors.
Learning under ambiguity, with Larry Epstein
Review of Economic Studies, 74((4), 1275-1303 (2007)
model of learning under ambiguity from iid signals. Shows that
ambiguity may but need not vanish in long run. Quantitative application
to portfolio choice with learning about mean returns
illustrates slow convergence & 1st order effects of parameter
Ambiguity, information quality and asset pricing, with Larry Epstein
Journal of Finance, 63(1), 197-228 (2008)
from signals with ambiguous precision induces asymmetric response to
news: good news discounted, bad news taken seriously. Asset
pricing model delivers negative skewness and premia for low
(idiosyncractic) information quality. Quantitative application to
pricing after 9/11.
Ambiguity and asset markets, with Larry Epstein
Annual Reviews of Financial Economics 2, 315-34 (2010)
Surveys models of ambiguity aversion and their applications in finance
Ambiguous Business Cycles, with Cosmin Ilut,
R&R, American Economic Review
a class of business cycle models with uncertainty shocks that can
be analyzed by standard linear methods. In estimated
medium scale New Keynesian model, ambiguity shocks play
important role by generating comovement of major aggregates
Uncertainty shocks, asset supply and pricing over the business cycle with Francesco Bianchi & Cosmin Ilut,
Business cycle model with corporate sector payout and capital structure choice. Firms react to time variation in (measured) risk premia. Risk premia are driven by ambiguity. Stochastic volatility affects perceived ambiguity and thereby has 1st order effects.
Credit & money
Balance Sheet Effects, Bailout Guarantees,
and Financial Crises, with Aaron Tornell
Review of Economic Studies 2004, 71(3), 883-913
cannot commit to repay, systemic bailout guarantees not only encourage
(coordinated) risk taking but also alleviate underinvestment. Explains
why emerging market lending booms see strong nontradable sector growth
financed by foreign currency debt and eventually become vulnerable to
self-fulfilling "twin crises" (widespread defaults & real
Aggregate implications of wealth redistribution: the case of inflation, with Matthias Doepke
Journal of the European Economic Association, 4(2-3), 493-502 (2006)
OLG model where zero sum redistribution shock has persistent aggregate
effects. Motivated by inflation episode, shock takes from old retired
agents with high propensity to consume out of wealth and gives to young
workers with low propensity to consume. Asymmetric responses decrease
aggregate labor supply and increase aggregate savings, and are
propagated slowly through changes in wealth distribution.
|Inflation and the Redistribution of Nominal Wealth, with Matthias Doepke|
Journal of Political Economy, 114(6), 1069-97 (2006)2006
Measures the size and duration of nominal positions for broad sectors
of the US economy as well as households by age and wealth. Shows that
an inflation episode entails sizeable redistribution from rich, old
households and foreigners towards young middle class households and the
government sector. A more gradual episode strengthens the effect as it
protects short term nominal assets of the middle class.
Inflation as a redistribution shocks: effects on aggregates and welfare, with Matthias Doepke
Quantifies the aggregate and welfare effects of an inflation episode in
the US economy. Inflation would benefit a broad coalition of households
provided that gains from the revaluation of government debt are used to
increase retirement benefits of the less well-off.
Money as a unit of account, with Matthias Doepke
Derives conditions for dominant unit of account in optimal system of
contracts. Assumes cost of writing contingent contracts and gains of
trade along credit chains formed by random matching. Common unit of
account helps avoid costly mismatch of income and expenditure along
chains and allows formation of longer chains.
Interest rate & credit risk
Equilibrium Yield Curves with Monika Piazzesi zip file with MATLAB programs
NBER Macroeconomics Annual 2006 p. 389-442
agent model with recursive utility predicts upward sloping nominal
yield curve because (i) inflation forecasts low future consumption
growth (ii) with recursive utility, signals of future consumption
growth are priced factors and (iii) longer bonds are more sensitive to
(persistent) inflation shocks. Learning about persistence and
forecasting power of inflation helps account for time variation in
yield curve dynamics.
Interest Rate Risk in Credit Markets with Monika Piazzesi
American Economic Review P&P, 100(2) 579-584 (2010)
how to represent riskless bond positions by portfolios in a few bonds.
Illustrates method by replicating position of US household sector.
Banks' risk exposures with Juliane Begenau and Monika Piazzesi
bank regulatory data to represent bank balance sheets in terms of
exposures to a few factors, allowing for credit risk. Proposes
estimation strategy for derivatives exposures based on position data
and price histories. Shows that large banks' derivatives positions' do
not hedge exposure from other business.
Trend and Cycle in Bond Premia with Monika Piazzesi and Juliana Salomao
Decomposes standard econometric measures of risk premia on long bonds
into components reflecting investors' subjective expectations (inferred
from survey forecasts) and subjective risk compensation. Pools
information on large number of maturities and forecast horizons. Shows
that cyclicality of risk premia is due to forecasting behavior, whereas
risk compensation matters at lower frequencies, especially in early
Housing, consumption and asset pricing, with Monika Piazzesi and Selale Tuzel
Journal of Financial Economics 83, 531-569 (2007)
agent model with two trees (housing, equity) and nonseparable utility
over fruit (housing services, other consumption). Composition risk
of consumption basket is priced and changes over time. Share of
housing in total consumption predicts excess returns on equity.
Inflation illusion, credit and asset prices, with Monika Piazzesi
in Asset Pricing and Monetary Policy, J.Y. Campbell (ed.), Chicago IL, Chicago University Press, pp. 147-181 (2007)
Whenever borrowers and lenders disagree about real interest rates, there are gains from trade, so credit and collateral values increase. Money illusion leads to more disagreement when nominal rates are unusually high or low, predicting housing booms in 1970s as well as 2000s.
Momentum traders in the housing market: survey evidence and a search model with Monika Piazzesi
American Economic Review P&P 99(2) 493-502 (2009)
Cluster analysis of Michigan survey expectations shows increase of small (20% max) cluster with extrapolative expectations
in 2006-7. In search model of housing market calibrated
to low turnover and large transaction costs, small inflow of exuberant traders is enough to move prices
Inflation and the Price of Real Assets, with Monika Piazzesi
generations model with unsinsurable nominal risk and household choice
of equity, housing & bonds. Changes in demographics and
inflation expectations can explain large share of movements
in household net worth and negative comovement of equity & house
price in postwar US
The Housing Market(s) of San Diego, with Tim Landvoigt and Monika Piazzesi,
R&R American Economic Review
study of assignment model for San Diego County housing market boom
2000-5. Capital gains much higher for low quality housing.
Cheap credit is key; composition of housing supply also matters.
Segmented housing search, with Monika Piazzesi and Johannes Stroebel
Divides SF Bay Area into housing market segments, starting from new
data set on buyers' internet searches. Documents substantial
heterogeneity in market activity and searcher clienteles across
segments. Search model with mutliple segments infers role of
moving shocks and buyer preferences.
Learning in markets
Strategic Experimentation and Disruptive
Technological Change, with
Review of Economic
Dynamics 2008, 11(2) 386-412.
investment game with learning between incumbent and startup who
operates new technology of unknown potential. Changes in
market power often preceded by subpar early performance of new
technology: incumbent then does not switch technologies and later
gambles for resurrection by sticking with old technology.
International Equity Flows and Returns: A
Quantitative Equilibrium Approach, with Rui Albuquerque and Greg Bauer
of Economic Studies 2007, 74/1: 1-30.
Quantitative model of equity trading with heterogeneous investors and
private information applied to G7 equity markets. Accounts for
volume, gross and net trades between US investors and locals as well as
the correlation of US investors' trades and returns. Within country
investor heterogenity is much more important than cross country
Global Private Information in
International Equity Markets, with Rui Albuquerque and Greg
Journal of Financial Economics 2009, 94
Documents "global return chasing": US investors' net equity purchases
comove with returns on many countries simultaneously. Model of trading
on "global" private information jointly accounts for global return
chasing, equity home bias and the mixed performance of foreign
investors in local markets.
Asset Valuation and Trading with Uncertain Exposure, with Juan Carlos Hatchondo and Per Krusell
from prices implies makes investors with higher initial exposure to a
risk factor more optimistic about that risk factor. Increase in
exposure by an unknown fraction of market participants does not lead to
sharing of exposure, but instead to less trade, lower prices and higher