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)

  • Journal of Monetary Economics, r&r

  • Abstract. Modeling continuous choices in heterogeneous agent models as “lotteries” over a discretized state space is standard practice (Young, 2010), but renders the distributional dynamics linear in optimal policies. We present a novel, simple method that captures nonlinearities and solves the distributional dynamics with interpolation instead of integration using the idea of an endogenous grid. Our approach solves for a stationary equilibrium as quickly as the lottery method for a given precision, outperforms it for linear dynamics, and accommodates nonlinear dynamics and aggregate risk. We demonstrate its efficacy by studying a model with aggregate investment risk with a third-order perturbation solution.

  • Newest version: pdf, CEPR Discussion Paper

• Why Do Supply Disruptions Lead to Inflation? (with Thomas Kohler, independent scholar, Jean-Paul L’Huillier, Brandeis University, and Gregory Phelan, Williams College)

  • Short Abstract. According to anecdotal accounts, firms tend to justify price increases as a need to cover cost increases. Standard pricing models imply that firms do not only adjust to cost increases, but also to changes in spending (such as pent-up demand). We present a model where this is not necessarily the case. Our framework relies on a novel asymmetry between firms and consumers, where firms have more precise information about aggregate shocks. We discipline the model using a survey of firms during the post-pandemic reopening of the German economy in March 2021. In a calibrated version of the model supply shocks are responsible for most of the upward adjustment of prices.

  • Newest version: pdf, SSRN

Work in progress

• Disaster Risk and Wealth Inequality (with Alexander Dietrich, Danmarks Nationalbank, and Gernot Müller, University of Tuebingen)

CV

You can find my CV here.