Jane Stanford Way
Uncertainty and change: survey evidence of firms' subjective beliefs (with Bachmann, Carstensen and Lautenbacher) November 2020
Learning about housing cost: survey evidence from the German house price boom (with Kindermann, LeBlanc and Piazzesi) September 2020
Uncertainty is more than risk: survey evidence on Knightian and Bayesian firms (with Bachmann, Carstensen and Lautenbacher) June 2020
Credit lines, bank deposits or CBDC? Competition and efficiency in modern payment systems (with Piazzesi) March 2020
Inflation and the price of real
assets (with Leombroni, Piazzesi and Rogers) January 2020,
Moving to fluidity: regional growth and labor market
churn (with Hoffmann and Piazzesi) June 2020
Money and Banking in a New
Keynesian Model (with Piazzesi and Rogers) October 2019
(with Piazzesi) November 2018
(with Begenau and Piazzesi) under revision for Econometrica
(with Piazzesi and Salomao)
Ambiguity in macro & finance
Credit & money
Interest rate & credit risk
Learning in markets
in macro & finance
multiple priors, with Larry
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.
under ambiguity, with Larry Epstein
Review of Economic Studies, 74((4), 1275-1303 (2007)
Tractable 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 uncertainty.
Ambiguity, information quality and asset pricing, with Larry Epstein
Journal of Finance, 63(1), 197-228 (2008)
Learning 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,
American Economic Review 104: 2368-2399 (2014)
Proposes 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,
Review of Economic Studies 85 (2), pp. 810–854, (2018)
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.
Slow to hire, quick to fire: employment dynamics with asymmetric responses to news, with Cosmin Ilut & Matthias Kehrig,
Journal of Political Economy, 126(5), pages 2011-2071, (2018)
Cross sectional dispersion of employment growth ("micro volatility") and conditional volatility of aggregate employment growth ("macro volatility") are countercyclical because firms respond more strongly to bad news than to good news. Micro data on manufacturing establishments further show negative skewness in time series and cross section, and asymmetric response to TFP shocks, both consistent with the mechanism.
Credit & money
Balance Sheet Effects, Bailout Guarantees, and Financial Crises, with Aaron Tornell
Review of Economic Studies 2004, 71(3), 883-913
If borrowers 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 devaluation).
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.
and the Redistribution of Nominal Wealth, with Matthias Doepke
Journal of Political Economy, 114(6), 1069-97 (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.
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.
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.
credit and asset prices, with Monika
Piazzesi; Simple monetary economy in which payments occur in two layers:
endusers (households and institutional investors) use inside money to pay for
goods and securities, whereas banks provide inside money and use outside money
(reserves) to handle payment instructions. Works out the determination of asset
prices & inflation to show how shocks to security payoffs affect inflation
and monetary policy affects asset prices. Monetary policy can no longer be
summarized by the nominal interest rate alone, as it affects both the return on
money and the mix of securities available to banks to back inside money.
with Monika Piazzesi and
Housing, consumption and asset pricing, with Monika Piazzesi and Selale Tuzel
Journal of Financial Economics 83, 531-569 (2007)
Representative 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
The Housing Market(s) of San Diego, with Tim Landvoigt and Monika Piazzesi,
American Economic Review 105(4): 1371-1407
Quantitative 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.
Housing assignment with restrictions: theory and evidence from Stanford campus (with Tim Landvoigt and Martin Schneider)
American Economic Review P&P 2014, pp. 67-72.
Pricing of indivisible houses when a subset of eligible investors has exclusive access to houses in a restricted area. House prices reflect the relative shapes of the distributions of quality (restricted vs other) and buyer characteristics (eligible vs other)
Inflation and the Price of Real Assets, with Monika Piazzesi
Overlapping 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
, with Monika Piazzesi
chapter for the new
(with Monika Piazzesi and Johannes Stroebel, forthcoming in the AER)
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
Review of Economic Dynamics 2008, 11(2) 386-412.
Dynamic 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
Review 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 heterogeneity.
Global Private Information in International Equity Markets, with Rui Albuquerque and Greg Bauer
Journal of Financial Economics 2009, 94 (1), 18-46.
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.
Learning 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 risk premia.