The country risk premium predicted by the dynamic real business cycle models in emerging markets is procyclical, whereas it countercyclical data. This paper proposes a model which time-varying emerges endogenously through variant of Bernanke–Gertler–Gilchrist financial accelerator mechanism. estimated can account for volatility and countercyclicality as well other key moments. Time-varying unce...

This paper investigates how the presence of pervasive financial frictions and large shocks changes optimal monetary policy prescriptions estimated dynamics in a New Keynesian model. We find that factors affect only to some extent. A nominal stabilization (with particular focus on targeting wage inflation) is still policy, although central bank now unable fully stabilize economic activity around...

Abstract This paper assesses the extent to which financial development and informality are related, how this relation translates into differences in GDP TFP across countries. To end, we develop a quantitative life-cycle general equilibrium model of occupational choice with imperfect tax enforcement, informal entrepreneurs have no access credit face an endogenous probability being caught for eva...

We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of high-skilled workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. Wh...

This paper develops a strategy for identifying and estimating the valuation distribution in ascending auctions where bidders have an unknown number of bidding opportunities. Our model leads to equilibrium jump bidding and potentially inefficient allocations. Our identification approach requires few assumptions on the types of equilibria played. In particular, we need not assume that a unique eq...

The literature on Foreign Direct Investment (FDI) has advanced several explanations of the links between financial market developments and FDI inflows across developing as well as developed countries. Empirical literature show that financial market development reduces informational frictions and improves resource allocation more efficiently. Also, financial systems are important for both produc...

We construct a model of rational bubbles under credit frictions and show that bubbles held by banks can generate large credit expansions followed by financial crisis. The size of boom-bust is somewhat larger than the case in which savers directly hold bubbles. Thus massive credit exansion during booms can be interpreted as an early warning indicator of possible subsequent crisis.

We study financial shocks to households’ ability to borrow in an economy that quantitatively replicates U.S. earnings, financial, and housing wealth distributions and the main macro aggregates. Such shocks generate large recessions via the negative wealth effect associated with the large drop in house prices triggered by the reduced access to credit of a large number of households. The model in...

Successful economic reforms produce long-lasting transitional dynamics for developing countries. This paper analyzes how financial frictions and mobility distortions generate the persistence of post-reform development dynamics. I build a general equilibrium model with heterogeneous agents, occupation choice and ruralurban migration, and I calibrate it to China. The mobility distortion is an occ...