Working papers

• Fundamental Stock Price Cycles

  • Abstract. News shocks about higher future capital returns can explain stock price-booms and subsequent -busts in a two-asset, heterogeneous agent New Keynesian model. The portfolio choice between more liquid and less liquid forms of capital is key, as it allows for a time-varying illiquidity premium. The arrival of investment opportunities induces capital-rich households to hold more illiquid capital at a lower premium, in anticipation of higher future returns on it. The anticipated higher consumption risk due to less liquid portfolios increases the value of more liquid assets, like stocks. When capital returns mean-revert, capital-rich households rebalance their portfolios, which increases the illiquidity premium and causes stock prices to fall. Novel evidence from survey data on portfolio choices of capital-wealthy households during stock price boom-bust cycles supports the key mechanism of the model.

  • Newest version: pdf

• An Endogenous Gridpoint Method for Distributional Dynamics (with Christian Bayer, University of Bonn, Ralph Luetticke, and Yannis Winkelmann, both University of Tuebingen)

  • Abstract. The “histogram method” (Young, 2010), while the standard approach for analyzing distributional dynamics in heterogeneous agent models, is linear in optimal policies. We introduce a novel method that captures nonlinearities of distributional dynamics. This method solves the distributional dynamics by interpolation instead of integration, which is made possible by making the grid endogenous. It retains the tractability and speed of the histogram method, while increasing numerical efficiency even in the steady state and producing significant economic differences in scenarios with aggregate risk. We document this by studying aggregate investment risk with a third-order solution using perturbation techniques.

  • Newest version: pdf, CEPR Discussion Paper

Work in progress

• Why Do Supply Disruptions Lead to Inflation? (with Thomas Kohler, independent scholar, Jean-Paul L’Huillier, Brandeis University, and Gregory Phelan, Williams College)
• The liquidity premium in heterogeneous agent models: an analytical framework

CV

You can find my CV here.