diff --git a/.gitignore b/.gitignore
index 89d6ff5f..543d9792 100644
--- a/.gitignore
+++ b/.gitignore
@@ -67,6 +67,9 @@ instance/
# Sphinx documentation
docs/_build/
+# MyST Markdown build output
+_build/
+
# PyBuilder
target/
@@ -110,5 +113,18 @@ env-*/
# mypy
.mypy_cache/
+# Dotfiles
+dotfiles/to
+
+# Project-specific (local only)
+researcher-requirements.md
+proposed-revisions.md
+scripts/create_paperpile_bib.py
+scripts/ipynb_to_myst.py
+
# Mac
.DS_Store
+
+# Cursor / SpecStory
+.cursor*
+.specstory*/
diff --git a/OptimumDebt.bib b/OptimumDebt.bib
new file mode 100644
index 00000000..4b46b827
--- /dev/null
+++ b/OptimumDebt.bib
@@ -0,0 +1,461 @@
+@ARTICLE{Woodford1990-ze,
+ title = "Public debt as private liquidity",
+ author = "Woodford, Michael",
+ journal = "American Economic Review",
+ publisher = "Columbia University",
+ volume = 80,
+ pages = "382--388",
+ abstract = "From page 382-- ``I [the author] wish to argue that the analysis
+ provided by the neoclassical model may not be an adequate guide
+ to policy, even if certain of its predictions are correct.
+ Instead, I [the author] direct attention to an alternative
+ explanation of the effects of changes in the level of public
+ debt, which leads to very different conclusions about the welfare
+ consequences of such policies. According to this view, 'Ricardian
+ equivalence' fails because of imperfect financial intermediation.
+ Some economic units are liquidity constrained, which is to say
+ that they are unable to borrow against their future income at a
+ rate of interest as low as that at which the government borrows.
+ Increased government borrowing can benefit such parties, insofar
+ as they effectively receive a highly liquid asset, government
+ debts, in exchange for giving the government an increased claim
+ on their future income, their own claim to which represented a
+ highly illiquid asset. A higher public debt, insofar as it
+ implies a higher proportion of liquid assets in private sector
+ wealth, increases the flexibility of the private sector in
+ responding to variation in both income and spending
+ opportunities, and so can increase economic efficiency.''",
+ month = jun,
+ year = 1990
+}
+
+@ARTICLE{Mehrling1995-hm,
+ title = "A note on the optimum quantity of money",
+ author = "Mehrling, Perry",
+ journal = "J. Math. Econ.",
+ publisher = "Elsevier BV",
+ volume = 24,
+ number = 3,
+ pages = "249--258",
+ abstract = "In a model where agents use money to offset uninsurable
+ idiosyncratic income fluctuation, Bewley (1983) has shown that it
+ may be impossible to satiate the demand for money as recommended
+ by the literature on the optimum quantity of money (Friedman,
+ 1969). This note shows, by means of an example, that even when it
+ is possible to implement the traditional optimum quantity
+ proposal, it may not be welfare-maximizing to do so on account of
+ a negative distribution effect.",
+ year = 1995,
+ language = "en"
+}
+
+@ARTICLE{Laitner1992-gn,
+ title = "Random earnings differences, lifetime liquidity constraints, and
+ altruistic intergenerational transfers",
+ author = "Laitner, John",
+ journal = "J. Econ. Theory",
+ publisher = "Elsevier BV",
+ volume = 58,
+ number = 2,
+ pages = "135--170",
+ abstract = "This paper develops a model of private savings behavior in which
+ households care about their descendants, cannot have negative net
+ worth, and have lifetime earnings depending on random draws from
+ an exogenous distribution of abilities. The elements interact:
+ very lucky parents are likely to leave large estates; constrained
+ children are unusually likely to receive intergenerational
+ transfers. The paper proves the existence of a stationary
+ cross-sectional distribution of wealth, endogenously determines
+ where liquidity constraints will bind, and shows that the
+ long-term interest rate must be such that Ricardian neutrality
+ fails. Its last section generates several illustrative numerical
+ simulations.",
+ month = dec,
+ year = 1992,
+ language = "en"
+}
+
+@MISC{Kehoe1992-wz,
+ title = "The optimum quantity of money revisited",
+ author = "Kehoe, Timothy J and Levine, David K and Woodford, Michael",
+ editor = "Dasgupta, P and Gale, D and Hart, O and Maskin, E",
+ booktitle = "The economic analysis of markets and games: Essays in honor of
+ Frank Hahn",
+ publisher = "Columbia University",
+ address = "Cambridge, MA",
+ pages = "501--526",
+ abstract = "From page 501 -- 'The accepted wisdom on the optimum quantity of
+ money was first expressed by Friedman (1953, 1969): Real money
+ balances represent a service to the economy provided by the
+ government at no cost. The government should maximize the
+ quantity of real balances it provides, since it is costless to do
+ so. It can do this either by means of a deflationary monetary
+ policy or by paying interest on nominal balances. Either policy
+ reduces the cost of holding idle balances and increases the value
+ of the money stock. Hahn (1971, 1973) has objected to Friedman's
+ analysis because it is not grounded in a fully specified model of
+ an economy with money: ... In this paper we study efficiency of
+ monetary policies in an economy in which money plays an essential
+ role.``",
+ month = jun,
+ year = 1992
+}
+
+@UNPUBLISHED{Jappelli1994-xc,
+ title = "The welfare effects of liquidity constraints",
+ author = "Jappelli, T and Pagano, M",
+ year = 1994
+}
+
+@ARTICLE{Hansen1992-dn,
+ title = "The role of unemployment insurance in an economy with liquidity
+ constraints and moral hazard",
+ author = "Hansen, Gary D and Imrohoroğlu, Ayşe",
+ journal = "J. Polit. Econ.",
+ publisher = "University of Chicago Press",
+ volume = 100,
+ number = 1,
+ pages = "118--142",
+ abstract = "The potential welfare benefits of unemployment insurance, along
+ with the optimal replacement ratio, are studied using a
+ quantitative dynamic general equilibrium model. To provide a role
+ for unemployment insurance, agents in the authors' economy face
+ exogenous idiosyncratic employment shocks and are unable to
+ borrow or insure themselves through private markets. In the
+ absence of moral hazard, replacement ratios as high as 0.65 are
+ optimal and the welfare benefits of unemployment insurance are
+ quite large. However, if there is moral hazard and the
+ replacement ratio is not set optimally, the economy can be much
+ worse-off than it would be without unemployment insurance.
+ Copyright 1992 by University of Chicago Press.",
+ month = feb,
+ year = 1992
+}
+
+@ARTICLE{Chamley1986-pw,
+ title = "Optimal taxation of capital income in general equilibrium with
+ infinite lives",
+ author = "Chamley, Christophe",
+ journal = "Econometrica",
+ publisher = "JSTOR",
+ volume = 54,
+ number = 3,
+ pages = 607,
+ abstract = "This paper analyzes the optimal tax on capital income in general
+ equilibrium models of the second best. Agents have infinite lives
+ and utility functions which are extensions from the Koopmans
+ form. The population is heterogeneous. The important property of
+ the models is the equality between the social and the private
+ discount rates in the long run. I find that the optimal tax rate
+ is zero in the long run. For a special case of additively
+ separable utility functions, I then determine the tax rates along
+ the dynamic path and conditions that are sufficient for the local
+ stability of the steady state.",
+ month = may,
+ year = 1986
+}
+
+@ARTICLE{Bewley1979-zu,
+ title = "The optimum quantity of money",
+ author = "Bewley, T",
+ editor = "Kareken, J H and Wallace, N",
+ publisher = "Federal Reserve Bank of Minneapolis",
+ address = "Minneapolis",
+ pages = "169--210",
+ abstract = "ideas, one may think of Friedman's optimum quantity of money as
+ optimal only in some asymptotic or approximate sense. One can
+ think of money as present but nearly irrelevant from",
+ year = 1979
+}
+
+@UNPUBLISHED{BewleyUnknown-ea,
+ title = "Interest bearing money and the equilibrium stock of capital",
+ author = "Bewley, T"
+}
+
+@ARTICLE{Aiyagari1994-ro,
+ title = "Macroeconomics With Frictions",
+ author = "Aiyagari, S Rao",
+ journal = "Q. Rev. - Fed. Reserve Bank Minneap.",
+ publisher = "Federal Reserve Bank of Minneapolis",
+ volume = 18,
+ number = 3,
+ pages = "24--32",
+ month = jun,
+ year = 1994
+}
+
+@ARTICLE{Varian1980-lb,
+ title = "Redistributive taxation as social insurance",
+ author = "Varian, Hal R",
+ journal = "J. Public Econ.",
+ publisher = "Elsevier BV",
+ volume = 14,
+ number = 1,
+ pages = "49--68",
+ abstract = "The modern literature on nonlinear optimal taxation treats
+ differences in income as being due to unobserved differences in
+ ability. A striking result of this assumption is that high income
+ agents should face a zero marginal tax rate. In this paper I
+ assume that differences in observed income are due to exogenous
+ differences in luck. Hence the optimal redistributive tax
+ involves trading off the benefits due to 'social insurance' with
+ the costs due to reduced incentives. I derive the optimal forms
+ for linear and nonlinear taxes, and compute some algebraic and
+ numeric examples. Typically high income individuals will face
+ quite high marginal tax rates.",
+ month = aug,
+ year = 1980,
+ language = "en"
+}
+
+@ARTICLE{McGrattan1996-yv,
+ title = "Solving the stochastic growth model with a finite element method",
+ author = "McGrattan, Ellen R",
+ journal = "J. Econ. Dyn. Control",
+ publisher = "Elsevier BV",
+ volume = 20,
+ number = "1-3",
+ pages = "19--42",
+ abstract = "Since it is the dominant paradigm of the business cycle and
+ growth literatures, the stochastic growth model has been used to
+ test the performance of alternative numerical methods. In this
+ paper I apply the finite element method to this model. I show
+ that the method is easy to apply and that, for examples such as
+ the stochastic growth model, it gives accurate solutions within a
+ second or two on a desktop computer. I also show how inequality
+ constraints can be handled by redefining the optimization problem
+ with penalty functions.",
+ month = jan,
+ year = 1996,
+ language = "en"
+}
+
+@ARTICLE{Lucas1990-se,
+ title = "Supply-side economics: An analytical review",
+ author = "Lucas, Jr, Robert E",
+ journal = "Oxf. Econ. Pap.",
+ publisher = "Oxford University Press (OUP)",
+ volume = 42,
+ number = 2,
+ pages = "293--316",
+ abstract = "In an electrocoating process acid binders which are present at
+ least partly in the form of their salts with basic compounds are
+ used and the basic compounds used for salt formation consist of
+ the extent of 0.1 to 50 percent of the neutralization equivalent
+ of the acid binder of at least one arylamine and/or alkynylamine
+ and/or quaternary ammonium hydroxide and/or phosphonium hydroxide
+ with at least one aromatic ligand, and other conventional
+ additives and non-basic corrosion inhibitors may be contained in
+ the aqueous solution or dispersion of the coating composition.
+ The process is suitable for the production of particularly
+ corrosion-resistant coatings on metal articles.",
+ month = apr,
+ year = 1990
+}
+
+@ARTICLE{Laitner1979-vy,
+ title = "Bequests, golden-age capital accumulation and government debt",
+ author = "Laitner, John P",
+ journal = "Economica",
+ publisher = "JSTOR",
+ volume = 46,
+ number = 184,
+ pages = 403,
+ abstract = "The purpose of this paper is to examine the golden ages of an
+ infinite time horizon economy in which individual families have
+ finite life-spans but are connected with other generations
+ through bequests. We construct a model of family bequest
+ behaviour based on utility maximization and combine it with a
+ simple, aggregative description of production. We then show that
+ the overall model always has at least one steady-state
+ equilibrium. Although we do not argue that bequest-motivated
+ saving must necessarily play a major role in total capital
+ accumulation, we do derive the following result: bequests will
+ become an overwhelmingly important source of capital in
+ situations in which the steady-state interest rate approaches a
+ level P 1 derived in our analysis. Thus, at minimum, bequest
+ behaviour has a safety value role, preventing a steady-state
+ interest rate too much above the golden rule level and, hence,
+ putting a lower bound on potential steady-state capital-to-labour
+ ratios. We also present a second, somewhat different, application
+ of our steady-state model: we show that the government can always
+ change the steady-state interest rate with a properly designed
+ shift between tax and debt financing of its spending. This result
+ conflicts with the argument that government debt is not a
+ component of private aggregate net worth since the discounted
+ value of future debt service should exactly counterbalance the
+ value now of any new government bonds issued. The organization of
+ this paper is as follows. The first section sets up our bequest
+ model for families. The second establishes the existence of at
+ least one steady state and derives a lower bound for the
+ aggregate capital-to-labour ratio. The third discusses government
+ debt. All proofs for the propositions of this paper are in a
+ separate appendix at the end.",
+ month = nov,
+ year = 1979
+}
+
+@UNPUBLISHED{Krusell1994-bb,
+ title = "Income and wealth heterogeneity, aggregate fluctuations, and the
+ representative agent",
+ author = "Krusell, P and Smith, A A",
+ year = 1994
+}
+
+@ARTICLE{Imrohoroglu1992-kx,
+ title = "The welfare cost of inflation under imperfect insurance",
+ author = "Imrohoroglu, A",
+ journal = "J. Econ. Dyn. Control",
+ volume = 16,
+ pages = "79--91",
+ year = 1992
+}
+
+@ARTICLE{Eaton1980-te,
+ title = "Labor supply, uncertainty, and efficient taxation",
+ author = "Eaton, J and Rosen, H S",
+ journal = "J. Public Econ.",
+ volume = 14,
+ pages = "365--374",
+ year = 1980
+}
+
+@ARTICLE{Cukierman1989-fd,
+ title = "A political theory of government debt and deficits in a
+ Neo-ricardian framework",
+ author = "Cukierman, A and Meltzer, A",
+ journal = "The American Economic Review",
+ volume = 79,
+ pages = "713--732",
+ year = 1989
+}
+
+@ARTICLE{Chamley1985-jq,
+ title = "Efficient taxation in a stylized model of intertemporal general
+ equilibrium",
+ author = "Chamley, C",
+ journal = "Int. Econ. Rev.",
+ volume = 26,
+ pages = "451--468",
+ year = 1985
+}
+
+@ARTICLE{Bewley1983-lj,
+ title = "A difficulty with the optimum quantity of money",
+ author = "Bewley, Truman",
+ journal = "Econometrica",
+ publisher = "JSTOR",
+ volume = 51,
+ number = 5,
+ pages = 1485,
+ month = sep,
+ year = 1983
+}
+
+@ARTICLE{Barro1979-px,
+ title = "On the determination of the public debt",
+ author = "Barro, Robert J",
+ journal = "J. Polit. Econ.",
+ publisher = "University of Chicago Press",
+ volume = 87,
+ number = "5, Part 1",
+ pages = "940--971",
+ abstract = "A public debt theory is constructed in which the Ricardian
+ invariance theorem is valid as a first-order proposition but
+ where the dependence of excess burden on the timing of taxation
+ implies an optimal time path of debt issue. A central proposition
+ is that deficits are varied in order to maintain expect ed
+ constancy in tax rates. This behavior implies a positive effect
+ on debt issue of temporary increases in government spending (as
+ in wartime) a countercyclical response of debt to temporary
+ income movements, and a one-to-one effect of expected inflation
+ on nominal debt growth. Debt issue would be invariant with the
+ outstanding debt-income ratio and, except for a minor effect,
+ with the level of government spending. Hypotheses are tested on
+ U.S. data since World WXar1. Results are basically in accord Fith
+ the theory. It also turns out that a small set of explanatory
+ variables can account for the principal movements in
+ interest-bearing federal debt since the 1920s.",
+ month = oct,
+ year = 1979
+}
+
+@ARTICLE{Aiyagari1994-kq,
+ title = "Uninsured idiosyncratic risk and aggregate saving",
+ author = "Aiyagari, S R",
+ journal = "Q. J. Econ.",
+ publisher = "Oxford University Press (OUP)",
+ volume = 109,
+ number = 3,
+ pages = "659--684",
+ abstract = "We present a qualitative and quantitative analysis of the
+ standard growth model modified to include precautionary saving
+ motives and liquidity constraints. We address the impact on the
+ aggregate saving rate, the importance of asset trading to
+ individuals, and the relative inequality of wealth and income
+ distributions.",
+ month = aug,
+ year = 1994,
+ language = "en"
+}
+
+@ARTICLE{Imrohoroglu1989-yp,
+ title = "Costs of business cycles with indivisibilities and liquidity
+ constraints",
+ author = "Imrohoroglu, A",
+ journal = "Journal of Political Economy",
+ volume = 97,
+ pages = "1364--1383",
+ year = 1989
+}
+
+@ARTICLE{Alvarez1992-ss,
+ title = "Banking in computable general equilibrium economies",
+ author = "Alvarez, F and Diaz-Giménez, J and Fitzgerald, T and Prescott, E C",
+ journal = "J. Econ. Dyn. Control",
+ volume = 16,
+ pages = "533--559",
+ year = 1992
+}
+
+@ARTICLE{Tauchen1986-vw,
+ title = "Finite state markov-chain approximations to univariate and vector
+ autoregressions",
+ author = "Tauchen, George",
+ journal = "Econ. Lett.",
+ publisher = "Elsevier BV",
+ volume = 20,
+ number = 2,
+ pages = "177--181",
+ abstract = "The paper develops a procedure for finding a discrete-valued
+ Markov chain whose sample paths approximate well those of a
+ vector autoregression. The procedure has applications in those
+ areas of economics, finance, and econometrics where approximate
+ solutions to integral equations are required.",
+ month = jan,
+ year = 1986,
+ language = "en"
+}
+
+@ARTICLE{Aiyagari1997-ix,
+ title = "The optimum quantity of debt",
+ author = "Aiyagari, S Rao and McGrattan, Ellen R",
+ abstract = "We find that the welfare gains to being at the optimum quantity of
+ debt rather than the current US level are small, and, therefore,
+ concerns regarding the high level of debt in the US economy may be
+ misplaced. This finding is based on a model of a large number of
+ infinitely lived households whose saving behavior is influenced by
+ precautionary saving motives and borrowing constraints. This model
+ incorporates a different role for government debt than is found in
+ standard models, and it captures different cost-benefit
+ trade-offs. On the benefit side, government debt enhances the
+ liquidity of households by providing an additional means of
+ smoothing consumption and by effectively loosening borrowing
+ constraints. On the cost side, the implied taxes have adverse
+ wealth distribution and incentive effects. In addition, government
+ debt crowds out capital via higher interest rates and lowers per
+ capita consumption.",
+ month = nov,
+ year = 1997
+}
diff --git a/literature-gaps.md b/literature-gaps.md
new file mode 100644
index 00000000..e6192794
--- /dev/null
+++ b/literature-gaps.md
@@ -0,0 +1,163 @@
+# Remaining Gaps in the Literature
+
+Based on the analysis of papers citing Aiyagari & McGrattan (1998), several important gaps remain:
+
+## 1. **Empirical Validation and Calibration Updates**
+
+**Gap**: Limited empirical work validating the model's predictions or updating calibrations with recent data.
+
+**What's missing**:
+- Empirical tests of whether actual debt levels align with model-implied optimal levels across countries
+- Updated calibrations using post-2008 financial crisis data (most work uses pre-crisis parameters)
+- Cross-country comparative studies testing the model's predictions
+- Validation of the "small welfare gains" finding with real-world data
+
+**Why it matters**: The original paper's finding that welfare gains are small needs empirical validation, especially given rising debt levels globally.
+
+## 2. **Dynamic Optimal Debt Paths (Not Just Steady States)**
+
+**Gap**: Most papers focus on steady-state optimal debt levels, not optimal transition paths.
+
+**What's missing**:
+- How should debt evolve optimally over time, especially after shocks?
+- Optimal debt dynamics during recessions vs. expansions
+- Analysis of optimal debt reduction paths (if starting from high levels)
+- Time-varying optimal debt-to-GDP ratios
+
+**Why it matters**: Policy makers need guidance on how to adjust debt over time, not just what the long-run level should be.
+
+## 3. **Heterogeneity Beyond Income/Wealth**
+
+**Gap**: Models typically focus on income/wealth heterogeneity but ignore other important dimensions.
+
+**What's missing**:
+- Age heterogeneity (life-cycle considerations) combined with liquidity constraints
+- Skill/education heterogeneity and its interaction with debt policy
+- Geographic heterogeneity (urban vs. rural, regional differences)
+- Health and disability status affecting liquidity needs
+- Family structure heterogeneity (single vs. married, children)
+
+**Why it matters**: Different types of heterogeneity may have different implications for optimal debt policy.
+
+## 4. **Financial Sector and Banking Frictions**
+
+**Gap**: Limited integration of banking sector and financial intermediation frictions.
+
+**What's missing**:
+- How does optimal debt policy change when banks face capital constraints?
+- Interaction between government debt and private credit markets
+- Role of financial crises and their impact on optimal debt
+- How does government debt affect bank lending and financial stability?
+
+**Why it matters**: The 2008 crisis showed financial sector frictions matter enormously, but most models abstract from them.
+
+## 5. **Uncertainty and Robustness**
+
+**Gap**: Limited analysis of robustness to model uncertainty and parameter uncertainty.
+
+**What's missing**:
+- Robust optimal policies under model uncertainty
+- Sensitivity analysis of optimal debt to key parameters
+- Analysis of optimal debt under different assumptions about risk preferences
+- How optimal debt changes with different income process specifications
+
+**Why it matters**: Policy recommendations need to be robust given uncertainty about model parameters and structure.
+
+## 6. **Distributional Consequences in Detail**
+
+**Gap**: While some papers examine distributional effects, detailed welfare analysis by household type is limited.
+
+**What's missing**:
+- Which specific household types benefit/lose from different debt levels?
+- Welfare decomposition: liquidity benefits vs. tax costs by household characteristics
+- Optimal debt when policy makers have distributional preferences (e.g., Rawlsian)
+- Trade-offs between aggregate efficiency and distributional equity
+
+**Why it matters**: Understanding who gains and loses is crucial for political feasibility and social welfare.
+
+## 7. **State-Dependent Optimal Policies**
+
+**Gap**: Most analysis assumes constant optimal debt levels, ignoring state-dependency.
+
+**What's missing**:
+- How should optimal debt vary with aggregate productivity?
+- Optimal debt policy during financial crises vs. normal times
+- State-contingent debt policies (debt levels that depend on economic conditions)
+- Optimal automatic stabilizers in heterogeneous-agent models
+
+**Why it matters**: Optimal policy likely depends on economic conditions, but this is underexplored.
+
+## 8. **Multiple Asset Types and Portfolio Choice**
+
+**Gap**: Models typically have simple asset structures (money, bonds, capital) but ignore richer portfolios.
+
+**What's missing**:
+- Optimal debt when households hold diverse portfolios (stocks, housing, etc.)
+- Interaction between government debt and housing markets
+- How does optimal debt change when households can invest in multiple risky assets?
+- Role of government debt as a safe asset in portfolios
+
+**Why it matters**: Real households hold diverse portfolios, which may affect optimal debt policy.
+
+## 9. **Open Economy Extensions**
+
+**Gap**: While Gounopoulos et al. (2025) examines spillovers, full open-economy analysis is limited.
+
+**What's missing**:
+- Optimal debt in small open economies vs. large economies
+- How does optimal debt change with capital mobility?
+- Currency denomination of debt and exchange rate considerations
+- Optimal coordination of debt policies across countries
+
+**Why it matters**: Most economies are open, and optimal policy may differ substantially in open vs. closed settings.
+
+## 10. **Non-Linear and Regime-Dependent Effects**
+
+**Gap**: Limited analysis of non-linearities and threshold effects.
+
+**What's missing**:
+- Are there debt thresholds beyond which effects change dramatically?
+- Non-linear effects of debt on interest rates and growth
+- Regime-switching models where optimal debt depends on which regime the economy is in
+- Analysis of debt sustainability limits and their implications
+
+**Why it matters**: Real-world effects may be highly non-linear, but most models assume smooth relationships.
+
+## 11. **Political Economy and Implementation**
+
+**Gap**: While Carroll et al. (2021) introduces political economy, this area is still underdeveloped.
+
+**What's missing**:
+- How do political institutions affect optimal debt?
+- Analysis of time-consistency problems in debt policy
+- How do electoral cycles affect optimal debt?
+- Political constraints on achieving optimal debt levels
+
+**Why it matters**: Even if we know optimal debt, political constraints may prevent achieving it.
+
+## 12. **Climate and Long-Run Risks**
+
+**Gap**: No integration of climate change or other long-run risks.
+
+**What's missing**:
+- How should optimal debt account for climate-related risks?
+- Optimal debt when facing uncertain long-run productivity (climate damage)
+- Intergenerational equity considerations with climate change
+- Role of government debt in financing climate adaptation/mitigation
+
+**Why it matters**: Climate change represents a major long-run risk that may affect optimal debt policy.
+
+## Priority Gaps for Future Research
+
+**Most urgent**:
+1. **Dynamic optimal paths** (not just steady states) - Policy makers need transition guidance
+2. **Empirical validation** - Need to test model predictions with real data
+3. **Financial sector integration** - Banking frictions are crucial but underexplored
+4. **State-dependent policies** - Optimal debt likely varies with economic conditions
+
+**High potential impact**:
+5. **Distributional analysis in detail** - Understanding winners/losers is crucial
+6. **Open economy extensions** - Most economies are open
+7. **Robustness analysis** - Policy needs to work under uncertainty
+
+These gaps represent opportunities for future research that would significantly advance our understanding of optimal government debt policy in heterogeneous-agent economies.
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/.gitignore b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/.gitignore
new file mode 100644
index 00000000..69fa449d
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/.gitignore
@@ -0,0 +1 @@
+_build/
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.ipynb b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.ipynb
index d4963a83..f566fad3 100644
--- a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.ipynb
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.ipynb
@@ -1,1349 +1,1390 @@
{
- "cells": [
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "slide"
- }
- },
- "source": [
- "The Optimum Quantity of Debt\n",
- "
\n",
- "Author: S. Rao Aiyagari and Ellen R. McGrattan\n",
- "Journal of Monetary Economics 42 (1998)\n",
- "
\n",
- "Slides by: Syareza Tobing (Ray)\n",
- " February 2021
\n"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "slide"
- }
- },
- "source": [
- "# I. Summary\n",
- "\n",
- "* The paper undertakes a normative exercise to calculate optimum quantity of risk-free public debt and the welfare cost of being outside the optimum using US data.\n",
- "\n"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "fragment"
- }
- },
- "source": [
- "* It studies economies with a large number of infinitely lived households whose saving behaviour is influenced by precautionary saving motives and borrowing constraints"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "fragment"
- }
- },
- "source": [
- "* It employs two models; \n",
- " * Inelastic labor supply and lump-sum taxes\n",
- " * Elastic labor supply and proportional taxes (benchmark)"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "subslide"
- }
- },
- "source": [
- "Effects of government debt on welfare:\n",
- "* An increase in debt increases the return on assets increasing welfare (+)\n",
- "* Taxes have distributional effects which lowers welfare (-)\n",
- "* Crowding out of capital which reduces percapita consumption (-)"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "subslide"
- }
- },
- "source": [
- "* It finds that the welfare gains to being at the optimum rather than the US level is trivially small\n",
- "\n",
- "\n",
- "![](\"P1Figure1.png\")
"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "slide"
- }
- },
- "source": [
- "# II. The Model\n",
- "\n",
- "### A growth model with uninsured idiosyncratic shocks"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "subslide"
- }
- },
- "source": [
- "* The model employed is an augmented version of the model in Aiyagari (1994)\n",
- " * Augmented to permit growth and to include government debt, lump-sum taxes and government consumption.\n",
- "* The consumer's problem is:"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "fragment"
- }
- },
- "source": [
- "$\\max _{\\left\\{\\tilde{c}_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[Y_{0}^{1-v} \\sum_{t=0}^{\\infty}\\left[\\beta(1+g)^{1-v}\\right]^{t} \\tilde{c}_{t}^{1-v} /(1-v) \\mid \\tilde{a}_{0}, e_{0}\\right]$\n",
- "\n",
- "subject to\n",
- "\n",
- "$\\begin{array}{l}\n",
- "\\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+r) \\tilde{a}_{t}+\\tilde{w} e_{t}-\\tau \\\\\n",
- "\\tilde{c}_{t} \\geq 0, \\tilde{a}_{t} \\geq 0, t \\geq 0\n",
- "\\end{array}$\n",
- "\n",
- "$\n",
- "\\\\\n",
- "$\n",
- "\n",
- "$\n",
- "\\begin{align}\n",
- " Y &: per \\ capita \\ output \\\\\n",
- " \\beta &: discount \\ factor \\\\ \n",
- " g &: rate \\ of \\ technical \\ progress \\\\\n",
- " v &: relative \\ risk \\ aversion \\ coefficient \\\\\n",
- " \\tilde{c} &: output \\ normalized \\ per \\ capita \\ consumption \\\\\n",
- " \\tilde{a} &: output \\ normalized \\ per \\ capita \\ asset \\ held \\ by \\ consumers \\\\\n",
- " \\tilde{w} &: output \\ normalized \\ per \\ capita \\ wage \\\\\n",
- " e &: individual \\ labor \\ productivity\n",
- "\\end{align}\n",
- "$"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "subslide"
- }
- },
- "source": [
- "* The effect of an increase of the quantity of debt on welfare is captured by the following welfare criterion\n",
- "\n",
- "$\\Omega=\\iint V(a, e) \\mathrm{d} H(a, e)$\n",
- "\n",
- "where:\n",
- "\n",
- "$\n",
- "\\begin{align}\n",
- " V(a, e) &: optimal \\ value \\ function \\\\\n",
- " H &: steady-state \\ joint \\ distribution \\ of \\ assets \\ and \\ productivity\n",
- "\\end{align}\n",
- "$"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "fragment"
- }
- },
- "source": [
- "The optimality criterion is utilitzed for three reasons:\n",
- "* Can be thought of as a utilitarian social welfare function\n",
- "* Can be though of as a steady-state ex ante welfare\n",
- "* Computationally tractable"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "slide"
- }
- },
- "source": [
- "# III Computational Method\n",
- "\n",
- "$\n",
- "\\begin{array}{l}\n",
- "\\max _{\\left\\{\\tilde{c}_{t}, l_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[\\sum_{t=0}^{\\infty} \\tilde{\\beta}^{t}\\left\\{\\frac{\\left(\\tilde{c}_{t}^{\\eta} l_{t}^{1-\\eta}\\right)^{1-\\mu}}{1-\\mu}+\\frac{1}{3} \\zeta\\left(\\min \\left(\\tilde{a}_{t}, 0\\right)^{3}+\\min \\left(1-l_{t}, 0\\right)^{3}\\right)\\right\\} \\mid \\tilde{a}_{0}, e_{0}\\right] \\\\\n",
- "\\text { subject to } \\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+\\bar{r}) \\tilde{a}_{t}+\\bar{w} e_{t}\\left(1-l_{t}\\right)+\\chi\n",
- "\\end{array}\n",
- "$"
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "subslide"
- }
- },
- "source": [
- "$\n",
- "\\begin{array}{l}\n",
- "R(x, i ; \\alpha)=\\eta(1+g) c\\left(l^{*}(x, i ; \\alpha)\\right)^{\\eta(1-\\mu)-1} l^{*}(x, i ; \\alpha)^{(1-\\eta)(1-\\mu)} \\\\\n",
- "-\\tilde{\\beta}\\left\\{\\sum_{j} \\pi_{i, j} \\eta(1+\\vec{r}) c\\left(l^{*}(\\alpha(x, i), j ; \\alpha)\\right)^{\\eta(1-\\mu)-1} \\cdot l^{*}(\\alpha(x, i), j ; \\alpha)^{(1-\\eta)(1-\\mu)}\\right. \\\\\n",
- "\\left.+\\zeta \\min (\\alpha(x, i), 0)^{2}\\right\\}\n",
- "\\end{array}\n",
- "$\n",
- "\n",
- "The computational task done by the author is to find an approximation for $\\alpha(x, i)$-say, $\\alpha^h(x, i)$-which implies that $R(x, i ; \\alpha^h)$ is approximately equal to zero for all $x$ and $i$, which they do by applying a finite element method."
- ]
- },
- {
- "cell_type": "markdown",
- "metadata": {
- "slideshow": {
- "slide_type": "slide"
- }
- },
- "source": [
- "\n",
- "\n",
- "Link to original paper and replication code\n",
- "* [Aiyagari-McGrattan](http://aefweb.net/AefArticles/aef040111.pdf)\n",
- "* [Replication](http://users.cla.umn.edu/~erm/data/sr203/)"
- ]
- }
- ],
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- "6273435/2BJ6FM4X": {
- "author": [
- {
- "family": "Arslan",
- "given": "Yavuz"
+ "cells": [
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "slide"
+ }
},
- {
- "family": "Guler",
- "given": "Bulent"
- },
- {
- "family": "Kuruscu",
- "given": "Burhanettin"
- }
- ],
- "id": "6273435/2BJ6FM4X",
- "issued": {
- "year": 2018
- },
- "title": "Bank Balance Sheets and Boom-Bust Cycles",
- "type": "report"
- },
- "6273435/2LKSCVY3": {
- "DOI": "10.1016/j.jue.2009.11.001",
- "URL": "http://www.sciencedirect.com/science/article/pii/S0094119009000977",
- "abstract": "In a recent paper, Leamer (2007) identified housing as an important precursor of the national business cycle. Previous work, on the other hand, has shown that regional cycles may not be synchronous with the aggregate cycle. In this paper, we analyze the relationship between housing and the business cycle at the MSA-level for a set of 51 US cities. We find that declines in house prices are often not followed by declines in that city’s employment. While the growth rates in housing variables appeared to slow ahead of city-level peaks, we find no consistent statistical relationship suggesting a city’s permits or prices influences its business cycle. In fact, we find that national permits are a better leading indicator for a city’s employment than a city’s own permits. This suggest the possibility that housing is merely a proxy for other consumption or wealth indicators.",
- "accessed": {
- "day": 6,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Ghent",
- "given": "Andra C."
- },
- {
- "family": "Owyang",
- "given": "Michael T."
- }
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- "container-title": "Journal of Urban Economics",
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- "issued": {
- "day": 1,
- "month": 5,
- "year": 2010
- },
- "journalAbbreviation": "Journal of Urban Economics",
- "page": "336-351",
- "page-first": "336",
- "shortTitle": "Is housing the business cycle?",
- "title": "Is housing the business cycle? Evidence from US cities",
- "title-short": "Is housing the business cycle?",
- "type": "article-journal",
- "volume": "67"
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- "DOI": "10.1093/rfs/hhw018",
- "URL": "https://academic.oup.com/rfs/article/29/7/1635/2607168",
- "abstract": "Abstract. This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on su",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
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- "family": "Adelino",
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- "family": "Schoar",
- "given": "Antoinette"
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- "family": "Severino",
- "given": "Felipe"
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- "year": 2016
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- "journalAbbreviation": "Rev Financ Stud",
- "language": "en",
- "page": "1635-1670",
- "page-first": "1635",
- "shortTitle": "Loan Originations and Defaults in the Mortgage Crisis",
- "title": "Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class",
- "title-short": "Loan Originations and Defaults in the Mortgage Crisis",
- "type": "article-journal",
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- "given": "Pavel"
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- "issued": {
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- "type": "report"
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- "DOI": "10.1111/jofi.12586",
- "URL": "https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12586",
- "abstract": "We present a model of credit cycles arising from diagnostic expectations—a belief formation mechanism based on Kahneman and Tversky's representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Bordalo",
- "given": "Pedro"
- },
- {
- "family": "Gennaioli",
- "given": "Nicola"
- },
- {
- "family": "Shleifer",
- "given": "Andrei"
- }
- ],
- "container-title": "The Journal of Finance",
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- "issue": "1",
- "issued": {
- "day": 1,
- "month": 2,
- "year": 2018
- },
- "language": "en",
- "page": "199-227",
- "page-first": "199",
- "title": "Diagnostic Expectations and Credit Cycles",
- "type": "article-journal",
- "volume": "73"
- },
- "6273435/5EW3ZYSE": {
- "URL": "https://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html",
- "abstract": "Paul Krugman Op-Ed column on signs that United States housing bubble has started to deflate (M)",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Krugman",
- "given": "Paul"
- }
- ],
- "container-title": "The New York Times",
- "id": "6273435/5EW3ZYSE",
- "issued": {
- "day": 8,
- "month": 8,
- "year": 2005
- },
- "language": "en-US",
- "section": "Opinion",
- "title": "That Hissing Sound",
- "type": "article-newspaper"
- },
- "6273435/5LQEJQJH": {
- "DOI": "10.1093/qje/qjq004",
- "URL": "https://academic.oup.com/qje/article/126/1/373/1901343",
- "abstract": "Abstract. We investigate whether individual experiences of macroeconomic shocks affect financial risk taking, as often suggested for the generation that experi",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Malmendier",
- "given": "Ulrike"
- },
- {
- "family": "Nagel",
- "given": "Stefan"
- }
- ],
- "container-title": "The Quarterly Journal of Economics",
- "container-title-short": "Q J Econ",
- "id": "6273435/5LQEJQJH",
- "issue": "1",
- "issued": {
- "day": 1,
- "month": 2,
- "year": 2011
- },
- "journalAbbreviation": "Q J Econ",
- "language": "en",
- "page": "373-416",
- "page-first": "373",
- "shortTitle": "Depression Babies",
- "title": "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*",
- "title-short": "Depression Babies",
- "type": "article-journal",
- "volume": "126"
- },
- "6273435/62FERJKI": {
- "URL": "https://papers.ssrn.com/abstract=3069621",
- "abstract": "Shared Appreciation Mortgages (SAMs) feature mortgage payments that adjust with house prices. These mortgage contracts are designed to stave off home owner default by providing payment relief in the wake of a large house price shock. SAMs have been hailed as an innovative solution that could prevent the next foreclosure crisis, act as a work-out tool during a crisis, and alleviate fiscal pressure during a downturn. They have inspired Fintech companies to offer home equity contracts. However, the home owner's gains are the mortgage lender's losses. A general equilibrium model with financial intermediaries who channel savings from saver households to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk-sharing. The two types of indexation have opposite implications for wealth inequality.",
- "author": [
- {
- "family": "Greenwald",
- "given": "Daniel"
- },
- {
- "family": "Landvoigt",
- "given": "Tim"
- },
- {
- "family": "Van Nieuwerburgh",
- "given": "Stijn"
- }
- ],
- "genre": "MIT Sloan Research Paper",
- "id": "6273435/62FERJKI",
- "issued": {
- "year": 2018
- },
- "language": "en",
- "number": "5261-17",
- "publisher": "MIT",
- "title": "Financial Fragility with SAM?",
- "type": "report"
- },
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- "author": [
- {
- "family": "Kahneman",
- "given": "Daniel"
- }
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- "event-place": "New York",
- "id": "6273435/6ASZQUFK",
- "issued": {
- "year": 2011
- },
- "publisher": "Farrar, Straus and Giroux",
- "publisher-place": "New York",
- "title": "Thinking, Fast and Slow",
- "type": "book"
- },
- "6273435/6HQGCZHA": {
- "DOI": "10.1093/qje/qjx017",
- "URL": "https://academic.oup.com/qje/article/132/4/1755/3854928",
- "abstract": "Abstract. An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 coun",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Mian",
- "given": "Atif"
- },
- {
- "family": "Sufi",
- "given": "Amir"
- },
- {
- "family": "Verner",
- "given": "Emil"
- }
- ],
- "container-title": "The Quarterly Journal of Economics",
- "container-title-short": "Q J Econ",
- "id": "6273435/6HQGCZHA",
- "issue": "4",
- "issued": {
- "day": 1,
- "month": 11,
- "year": 2017
- },
- "journalAbbreviation": "Q J Econ",
- "language": "en",
- "page": "1755-1817",
- "page-first": "1755",
- "title": "Household Debt and Business Cycles Worldwide",
- "type": "article-journal",
- "volume": "132"
- },
- "6273435/8IVI23TT": {
- "author": [
- {
- "family": "Schlafmann",
- "given": "Kathrin"
- }
- ],
- "genre": "CEPR Discussion Paper",
- "id": "6273435/8IVI23TT",
- "issued": {
- "year": 2016
- },
- "number": "11589",
- "title": "Housing, Mortgages, and Self Control",
- "type": "report"
+ "source": [
+ "The Optimum Quantity of Debt\n",
+ "
\n",
+ "Author: S. Rao Aiyagari and Ellen R. McGrattan\n",
+ "Journal of Monetary Economics 42 (1998)\n",
+ "
\n",
+ "Slides by: Syareza Tobing (Ray)\n",
+ " February 2021
\n",
+ "Edits by: Yiran Ma (Emma) (Feb 2026)\n"
+ ]
},
- "6273435/98I3UQNW": {
- "author": [
- {
- "family": "Minsky",
- "given": "Hyman P."
- }
- ],
- "id": "6273435/98I3UQNW",
- "issued": {
- "year": 1986
- },
- "title": "Stabilizing an Unstable Economy",
- "type": "book"
- },
- "6273435/9ERTKWRC": {
- "author": [
- {
- "family": "Garcia",
- "given": "Daniel"
- }
- ],
- "id": "6273435/9ERTKWRC",
- "issued": {
- "year": 2018
- },
- "title": "Employment in the Great Recession: How Important were Household Credit Supply Shocks?",
- "type": "report"
- },
- "6273435/9GRH68SP": {
- "author": [
- {
- "family": "Bartscher",
- "given": "Alina"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "slide"
+ }
},
- {
- "family": "Schularick",
- "given": "Moritz"
- },
- {
- "family": "Steins",
- "given": "Ulrike I."
- }
- ],
- "id": "6273435/9GRH68SP",
- "issued": {
- "year": 2017
- },
- "title": "The Great American Debt Boom, 1948-2013",
- "type": "report"
- },
- "6273435/A2G7SCE7": {
- "URL": "https://ideas.repec.org/a/fip/fedkpr/y2007p149-233.html",
- "abstract": "Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession. Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables. Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have. By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.
(This abstract was borrowed from another version of this item.)",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Leamer",
- "given": "Edward E."
- }
- ],
- "container-title": "Proceedings - Economic Policy Symposium - Jackson Hole",
- "id": "6273435/A2G7SCE7",
- "issued": {
- "year": 2007
- },
- "language": "en",
- "page": "149-233",
- "page-first": "149",
- "title": "Housing is the business cycle",
- "type": "article-journal"
+ "source": [
+ "# I. Summary\n",
+ "\n",
+ "* The paper undertakes a normative exercise to calculate optimum quantity of risk-free public debt and the welfare cost of being outside the optimum using US data.\n",
+ "\n"
+ ]
},
- "6273435/AR5CX6Z6": {
- "author": [
- {
- "family": "Nagel",
- "given": "Stefan"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "fragment"
+ }
},
- {
- "family": "Xu",
- "given": "Zhengyang"
- }
- ],
- "id": "undefined",
- "issued": {
- "year": 2018
- },
- "language": "en",
- "page": "56",
- "page-first": "56",
- "title": "Asset Pricing with Fading Memory",
- "type": "article-journal"
- },
- "6273435/AV7DSQTR": {
- "URL": "https://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-10",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Chudley",
- "given": "Jody"
- }
- ],
- "container-title": "Business Insider",
- "id": "6273435/AV7DSQTR",
- "title": "JFK's father used a simple trick to spot market bubbles — and you can too",
- "type": "webpage"
+ "source": [
+ "* It studies economies with a large number of infinitely lived households whose saving behaviour is influenced by precautionary saving motives and borrowing constraints"
+ ]
},
- "6273435/BL42NIKV": {
- "author": [
- {
- "family": "Finocchiaro",
- "given": "Daria"
- },
- {
- "family": "Jonsson",
- "given": "Magnus"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "fragment"
+ }
},
- {
- "family": "Nilsson",
- "given": "Christian"
- },
- {
- "family": "Strid",
- "given": "Ingvar"
- }
- ],
- "container-title": "Sveriges Riksbank Economic Review",
- "id": "6273435/BL42NIKV",
- "issued": {
- "year": 2018
- },
- "title": "Macroeconomic effects of reducing household debt",
- "type": "article-journal"
- },
- "6273435/BLFT9BEG": {
- "author": [
- {
- "family": "Mackay",
- "given": "Charles"
- }
- ],
- "id": "6273435/BLFT9BEG",
- "issued": {
- "year": 1841
- },
- "language": "English",
- "publisher": "Richard Bentley",
- "shortTitle": "Extraordinary Popular Delusions",
- "title": "Extraordinary Popular Delusions and the Madness of Crowds",
- "title-short": "Extraordinary Popular Delusions",
- "type": "book"
+ "source": [
+ "* It employs two models; \n",
+ " * Inelastic labor supply and lump-sum taxes\n",
+ " * Elastic labor supply and proportional taxes (benchmark)"
+ ]
},
- "6273435/D7FS5MRE": {
- "URL": "http://www.nber.org/papers/w22903",
- "abstract": "This paper studies temporary policy incentives designed to address capital overhang by inducing asset demand from buyers in the private market. Using variation across local geographies in ex ante program exposure and a difference-in-differences design, we find that the First-Time Homebuyer Credit induced a cumulative increase in home sales of 397 to 546 thousand, or 7.8 to 10.7 percent, nationally. We find little evidence of a sharp reversal of the policy response; instead, demand comes from several years in the future. The program likely sped the process of reallocating homes from distressed sellers to high value buyers, which stabilized house prices. The response is concentrated in the existing home sales market, implying the stimulative effects of the program were less important than its role in accelerating reallocation.",
- "accessed": {
- "day": 9,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Berger",
- "given": "David"
- },
- {
- "family": "Turner",
- "given": "Nicholas"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "subslide"
+ }
},
- {
- "family": "Zwick",
- "given": "Eric"
- }
- ],
- "genre": "Working Paper",
- "id": "6273435/D7FS5MRE",
- "issued": {
- "month": 12,
- "year": 2016
- },
- "note": "DOI: 10.3386/w22903",
- "number": "22903",
- "publisher": "National Bureau of Economic Research",
- "title": "Stimulating Housing Markets",
- "type": "report"
- },
- "6273435/DCC92Q2Z": {
- "URL": "http://www.economist.com/special-report/2003/05/29/house-of-cards",
- "abstract": "In many countries the stockmarket bubble has been replaced by a property-price bubble. Sooner or later it will burst, says Pam Woodall, our economics editor",
- "accessed": {
- "day": 6,
- "month": 9,
- "year": 2018
- },
- "container-title": "The Economist",
- "id": "6273435/DCC92Q2Z",
- "issued": {
- "day": 29,
- "month": 5,
- "year": 2003
- },
- "title": "House of cards",
- "type": "article-magazine"
+ "source": [
+ "Effects of government debt on welfare:\n",
+ "* An increase in debt increases the return on assets increasing welfare (+)\n",
+ "* Taxes have distributional effects which lowers welfare (-)\n",
+ "* Crowding out of capital which reduces percapita consumption (-)"
+ ]
},
- "6273435/EB4C5G4S": {
- "author": [
- {
- "family": "Kindleberger",
- "given": "Charles P."
- }
- ],
- "id": "6273435/EB4C5G4S",
- "issued": {
- "year": 1978
- },
- "language": "en",
- "publisher": "Palgrave Macmillan",
- "title": "Manias, Panics, and Crashes: A History of Financial Crises",
- "type": "book"
- },
- "6273435/EGT99GAZ": {
- "author": [
- {
- "family": "Walentin",
- "given": "Karl"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "subslide"
+ }
},
- {
- "family": "Hull",
- "given": "Isaiah"
- },
- {
- "family": "Olovsson",
- "given": "Conny"
- }
- ],
- "genre": "Sveriges Riksbank Working Paper Series",
- "id": "6273435/EGT99GAZ",
- "issued": {
- "year": 2018
- },
- "number": "349",
- "title": "The Granular Origins of Aggregate House Price Volatility",
- "type": "report"
+ "source": [
+ "* It finds that the welfare gains to being at the optimum rather than the US level is trivially small\n",
+ "\n",
+ "\n",
+ " "
+ ]
},
- "6273435/EJUQGA4W": {
- "author": [
- {
- "family": "Albanesi",
- "given": "Stefania"
- }
- ],
- "id": "6273435/EJUQGA4W",
- "issued": {
- "year": 2018
- },
- "title": "Real Estate Investors and the 2007-2009 Mortgage Crisis",
- "type": "report"
- },
- "6273435/EXL57QX8": {
- "author": [
- {
- "family": "Khan",
- "given": "Shujaat"
- }
- ],
- "id": "6273435/EXL57QX8",
- "issued": {
- "year": 2018
- },
- "title": "The Anatomy of Macroprudential Policies in a Heterogeneous Agent Model of Housing Default",
- "type": "report"
- },
- "6273435/HAEFCS8B": {
- "DOI": "10.1257/aer.91.2.1",
- "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.91.2.1",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Hall",
- "given": "Robert E."
- }
- ],
- "container-title": "American Economic Review",
- "id": "6273435/HAEFCS8B",
- "issue": "2",
- "issued": {
- "month": 5,
- "year": 2001
- },
- "language": "en",
- "page": "1-11",
- "page-first": "1",
- "title": "Struggling to Understand the Stock Market",
- "type": "article-journal",
- "volume": "91"
- },
- "6273435/HRF5MEAR": {
- "DOI": "10.1086/680584",
- "URL": "https://www.journals.uchicago.edu/doi/10.1086/680584",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Hall",
- "given": "Robert E."
- }
- ],
- "container-title": "NBER Macroeconomics Annual",
- "container-title-short": "NBER Macroeconomics Annual",
- "id": "6273435/HRF5MEAR",
- "issue": "1",
- "issued": {
- "day": 1,
- "month": 1,
- "year": 2015
- },
- "journalAbbreviation": "NBER Macroeconomics Annual",
- "page": "71-128",
- "page-first": "71",
- "title": "Quantifying the Lasting Harm to the US Economy from the Financial Crisis",
- "type": "article-journal",
- "volume": "29"
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "# Prior Literature (what this paper builds on)\n",
+ "\n",
+ "Aiyagari & McGrattan (1998) builds on the Bewley–Aiyagari incomplete-markets tradition, where households face **uninsurable idiosyncratic risk** and **borrowing constraints**, generating **precautionary saving** and a non-degenerate wealth distribution (Bewley 1983; Aiyagari 1994). Within this framework, the paper studies government debt not just as a financing device, but as a **liquid safe asset** that can relax household liquidity constraints—an idea closely related to the “public debt as private liquidity” perspective (Woodford 1990).\n",
+ "\n",
+ "The key gap the paper addresses is quantitative and normative: earlier work established the mechanisms (liquidity benefits vs. tax/distortion and crowding-out costs), but did not pin down **how much** risk-free public debt is optimal in a calibrated heterogeneous-agent general equilibrium model with taxes.\n",
+ "\n",
+ "**Key foundational papers (3–5):**\n",
+ "- Bewley (1983), *A difficulty with the optimum quantity of money*: canonical incomplete-markets/liquidity-constraint framework.\n",
+ "- Aiyagari (1994), *Uninsured idiosyncratic risk and aggregate saving*: quantitative GE version with capital and wealth distribution.\n",
+ "- Woodford (1990), *Public debt as private liquidity*: debt as liquidity and a reason Ricardian equivalence can fail.\n",
+ "- Chamley (1986), *Optimal taxation of capital income*: benchmark for thinking about distortionary tax costs in GE.\n",
+ "- Barro (1979), *On the determination of the public debt*: Ricardian benchmark the constrained-agent setting departs from.\n"
+ ]
},
- "6273435/HZE378I7": {
- "URL": "https://www.brookings.edu/wp-content/uploads/2003/06/2003b_bpea_caseshiller.pdf",
- "abstract": "This paper looks for evidence of a bubble in U.S. housing prices. It analyzes quarterly state-level data over 1985-2002, focusing on the relationship between home prices and selected fundamental variables. Income per capita alone largely explains price changes in all but eight states; in the latter, large price movements are observed unrelated to the fundamentals. Results from a new survey of recent homebuyers in the Los Angeles, San Francisco, Boston, and Milwaukee metropolitan areas are reported. This survey replicates an almost identical 1988 survey and finds, as before, that buyers in most of these markets perceive little risk in their housing investment, have unrealistic expectations about future price increases, and hold economically implausible beliefs about home price behavior—findings consistent with a bubble. Prices in such markets could stall or decline, but only if such declines are simultaneous or spread to other markets are significant effects on the national economy likely.",
- "author": [
- {
- "family": "Case",
- "given": "Karl E."
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "slide"
+ }
},
- {
- "family": "Shiller",
- "given": "Robert J."
- }
- ],
- "collection-title": "Brookings Papers on Economic Activity",
- "id": "6273435/HZE378I7",
- "issued": {
- "year": 2003
- },
- "publisher": "Brookings Institute",
- "title": "Is There a Bubble in the Housing Market?",
- "type": "report"
+ "source": [
+ "# II. The Model\n",
+ "\n",
+ "### A growth model with uninsured idiosyncratic shocks"
+ ]
},
- "6273435/JMNWJTKW": {
- "DOI": "10.1016/j.iref.2015.02.002",
- "URL": "http://www.sciencedirect.com/science/article/pii/S1059056015000246",
- "abstract": "There has been, in recent years, a renewed interest in and a growing recognition of the role played by uncertainty shocks in driving fluctuations in the economy and in asset markets. We create new text-based indicators of both general economic and policy specific uncertainty from New York Times and use them first, to chart changes in the level of uncertainty in the US for the period 1985–2007, second, to determine the role of policy in these swings, and, third to assess their impact on the economy, equity markets, and business cycles. Overall, our results indicate that uncertainty shocks – both general and policy related – depress the level of economic activity, significantly increase stock market volatility, and decrease market returns.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Alexopoulos",
- "given": "Michelle"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "subslide"
+ }
},
- {
- "family": "Cohen",
- "given": "Jon"
- }
- ],
- "container-title": "International Review of Economics & Finance",
- "container-title-short": "International Review of Economics & Finance",
- "id": "6273435/JMNWJTKW",
- "issued": {
- "day": 1,
- "month": 11,
- "year": 2015
- },
- "journalAbbreviation": "International Review of Economics & Finance",
- "page": "8-28",
- "page-first": "8",
- "shortTitle": "The power of print",
- "title": "The power of print: Uncertainty shocks, markets, and the economy",
- "title-short": "The power of print",
- "type": "article-journal",
- "volume": "40"
+ "source": [
+ "* The model employed is an augmented version of the model in Aiyagari (1994)\n",
+ " * Augmented to permit growth and to include government debt, lump-sum taxes and government consumption.\n",
+ "* The consumer's problem is:"
+ ]
},
- "6273435/JYAC2RG2": {
- "URL": "https://ideas.repec.org/a/fip/fedker/y2007iqivp115-145nv.92no.4.html",
- "abstract": "Residential foreclosures in the United States have been rising very rapidly since 2006. In the second quarter of 2007, the share of outstanding mortgages in some stage of foreclosure stood at 1.4 percent, near historic highs and up from less than 1 percent a year earlier. The number of mortgages entering the foreclosure process reached an all-time high in mid-2007, suggesting that the foreclosure surge is likely to get worse before it gets better. ; The foreclosure surge was created by a perfect storm of events. First, in recent years the share of subprime mortgage originations increased substantially. Second, foreclosure rates for adjustable-rate mortgages (ARMs) have increased considerably, especially for subprime ARMs. This increase is largely due to rising short-term interest rates and to payment resets for many nontraditional mortgages. Finally, high loan-to-value originations in recent years, coupled with stagnant or falling home prices, have left many people with insufficient equity to sell or refinance their homes. ; Edmiston and Zalneraitis provide a detailed dissection of the current foreclosure surge. They conclude with a discussion of why the foreclosure situation is likely to get worse over the next one to two years and why it is likely to improve afterward.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Edmiston",
- "given": "Kelly D."
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "fragment"
+ }
},
- {
- "family": "Zalneraitis",
- "given": "Roger"
- }
- ],
- "container-title": "Economic Review",
- "id": "6273435/JYAC2RG2",
- "issue": "Q IV",
- "issued": {
- "year": 2007
- },
- "language": "en",
- "page": "115-145",
- "page-first": "115",
- "shortTitle": "Rising foreclosures in the United States",
- "title": "Rising foreclosures in the United States: a perfect storm",
- "title-short": "Rising foreclosures in the United States",
- "type": "article-journal"
- },
- "6273435/LGD94T7L": {
- "URL": "https://www.federalreserve.gov/boarddocs/speeches/2004/20040521/default.htm",
- "author": [
- {
- "family": "Gramlich",
- "given": "Edward M."
- }
- ],
- "id": "6273435/LGD94T7L",
- "issued": {
- "year": 2004
- },
- "note": "Remarks by Governor Edward M. Gramlich at the Financial Services Roundtable Annual Housing Policy Meeting, Chicago, Illinois.",
- "title": "Subprime Mortgage Lending: Benefits, Costs, and Challenges",
- "type": "webpage"
- },
- "6273435/MRW6WNVP": {
- "author": [
- {
- "family": "Blinder",
- "given": "Alan S."
- }
- ],
- "id": "6273435/MRW6WNVP",
- "issued": {
- "year": 2013
- },
- "publisher": "Penguin Press",
- "title": "After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead",
- "type": "book"
+ "source": [
+ "$\\max _{\\left\\{\\tilde{c}_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[Y_{0}^{1-v} \\sum_{t=0}^{\\infty}\\left[\\beta(1+g)^{1-v}\\right]^{t} \\tilde{c}_{t}^{1-v} /(1-v) \\mid \\tilde{a}_{0}, e_{0}\\right]$\n",
+ "\n",
+ "subject to\n",
+ "\n",
+ "$\\begin{array}{l}\n",
+ "\\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+r) \\tilde{a}_{t}+\\tilde{w} e_{t}-\\tau \\\\\n",
+ "\\tilde{c}_{t} \\geq 0, \\tilde{a}_{t} \\geq 0, t \\geq 0\n",
+ "\\end{array}$\n",
+ "\n",
+ "$\n",
+ "\\\\\n",
+ "$\n",
+ "\n",
+ "$\n",
+ "\\begin{align}\n",
+ " Y &: per \\ capita \\ output \\\\\n",
+ " \\beta &: discount \\ factor \\\\ \n",
+ " g &: rate \\ of \\ technical \\ progress \\\\\n",
+ " v &: relative \\ risk \\ aversion \\ coefficient \\\\\n",
+ " \\tilde{c} &: output \\ normalized \\ per \\ capita \\ consumption \\\\\n",
+ " \\tilde{a} &: output \\ normalized \\ per \\ capita \\ asset \\ held \\ by \\ consumers \\\\\n",
+ " \\tilde{w} &: output \\ normalized \\ per \\ capita \\ wage \\\\\n",
+ " e &: individual \\ labor \\ productivity\n",
+ "\\end{align}\n",
+ "$"
+ ]
},
- "6273435/N2QBSRRP": {
- "URL": "https://faculty.missouri.edu/~hedlunda/research/housing_boombust_main.pdf",
- "author": [
- {
- "family": "Garriga",
- "given": "Carlos"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "subslide"
+ }
},
- {
- "family": "Hedlund",
- "given": "Aaron"
- }
- ],
- "id": "6273435/N2QBSRRP",
- "issued": {
- "year": 2018
- },
- "title": "Housing Finance, Boom-Bust Episodes, and\nMacroeconomic Fragility",
- "type": "report"
+ "source": [
+ "* The effect of an increase of the quantity of debt on welfare is captured by the following welfare criterion\n",
+ "\n",
+ "$\\Omega=\\iint V(a, e) \\mathrm{d} H(a, e)$\n",
+ "\n",
+ "where:\n",
+ "\n",
+ "$\n",
+ "\\begin{align}\n",
+ " V(a, e) &: optimal \\ value \\ function \\\\\n",
+ " H &: steady-state \\ joint \\ distribution \\ of \\ assets \\ and \\ productivity\n",
+ "\\end{align}\n",
+ "$"
+ ]
},
- "6273435/PUJGD86E": {
- "URL": "http://www.nber.org/chapters/c13907",
- "accessed": {
- "day": 9,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Manski",
- "given": "Charles F."
- }
- ],
- "container-title": "NBER Macroeconomics Annual 2017, volume 32",
- "id": "6273435/PUJGD86E",
- "issued": {
- "day": 10,
- "month": 4,
- "year": 2017
- },
- "page": "411-471",
- "page-first": "411",
- "shortTitle": "Survey Measurement of Probabilistic Macroeconomic Expectations",
- "title": "Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise",
- "title-short": "Survey Measurement of Probabilistic Macroeconomic Expectations",
- "type": "article-journal"
- },
- "6273435/Q7UH3SHN": {
- "DOI": "10.1257/089533005775196769",
- "URL": "https://www.aeaweb.org/articles?id=10.1257/089533005775196769",
- "abstract": "How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices—both whether there is a bubble and what underlying factors support housing demand—in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market. For a number of reasons, conventional metrics for assessing pricing in the housing market such as price-to-rent ratios or price-to-income ratios generally fail to reflect accurately the state of housing costs. To the eyes of analysts employing such measures, housing markets can appear \"exuberant\" even when houses are in fact reasonably priced. We construct a measure for evaluating the cost of home owning that is standard for economists—the imputed annual rental cost of owning a home, a variant of the user cost of housing—and apply it to 25 years of history across a wide variety of housing markets. This calculation enables us to estimate the time pattern of housing costs within a market. As of the end of 2004, our analysis reveals little evidence of a housing bubble.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Himmelberg",
- "given": "Charles"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "fragment"
+ }
},
- {
- "family": "Mayer",
- "given": "Christopher"
- },
- {
- "family": "Sinai",
- "given": "Todd"
- }
- ],
- "container-title": "Journal of Economic Perspectives",
- "id": "6273435/Q7UH3SHN",
- "issue": "4",
- "issued": {
- "month": 12,
- "year": 2005
- },
- "language": "en",
- "page": "67-92",
- "page-first": "67",
- "shortTitle": "Assessing High House Prices",
- "title": "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions",
- "title-short": "Assessing High House Prices",
- "type": "article-journal",
- "volume": "19"
+ "source": [
+ "The optimality criterion is utilitzed for three reasons:\n",
+ "* Can be thought of as a utilitarian social welfare function\n",
+ "* Can be though of as a steady-state ex ante welfare\n",
+ "* Computationally tractable"
+ ]
},
- "6273435/TJ86B67S": {
- "author": [
- {
- "family": "Mian",
- "given": "Atif"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "slide"
+ }
},
- {
- "family": "Sufi",
- "given": "Amir"
- }
- ],
- "container-title": "Journal of Economic Perspectives",
- "id": "6273435/TJ86B67S",
- "issue": "3",
- "issued": {
- "year": 2018
- },
- "page": "1-30",
- "page-first": "1",
- "title": "Finance and Business Cycles: The Credit-Driven Household Demand Channel",
- "type": "article-journal",
- "volume": "32"
+ "source": [
+ "# III Computational Method\n",
+ "\n",
+ "$\n",
+ "\\begin{array}{l}\n",
+ "\\max _{\\left\\{\\tilde{c}_{t}, l_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[\\sum_{t=0}^{\\infty} \\tilde{\\beta}^{t}\\left\\{\\frac{\\left(\\tilde{c}_{t}^{\\eta} l_{t}^{1-\\eta}\\right)^{1-\\mu}}{1-\\mu}+\\frac{1}{3} \\zeta\\left(\\min \\left(\\tilde{a}_{t}, 0\\right)^{3}+\\min \\left(1-l_{t}, 0\\right)^{3}\\right)\\right\\} \\mid \\tilde{a}_{0}, e_{0}\\right] \\\\\n",
+ "\\text { subject to } \\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+\\bar{r}) \\tilde{a}_{t}+\\bar{w} e_{t}\\left(1-l_{t}\\right)+\\chi\n",
+ "\\end{array}\n",
+ "$"
+ ]
},
- "6273435/UWMQ3ND7": {
- "URL": "http://www.nber.org/papers/w23281",
- "abstract": "This paper extends the benchmark New-Keynesian model with a representative agent and rational expectations by introducing two key frictions: (1) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally-binding borrowing constraints; and (2) bounded rationality in the form of level-k thinking. Compared to the benchmark model, we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy, which is much more pronounced at long horizons, and offers a potential rationalization of the “forward guidance puzzle”. Each of these frictions, in isolation, would lead to no or much smaller departures from the benchmark model. We conclude that the interaction of bounded rationality and market frictions improves the ability of the model to account for the effects of monetary policy.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Farhi",
- "given": "Emmanuel"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "subslide"
+ }
},
- {
- "family": "Werning",
- "given": "Iván"
- }
- ],
- "genre": "Working Paper",
- "id": "6273435/UWMQ3ND7",
- "issued": {
- "month": 3,
- "year": 2017
- },
- "note": "DOI: 10.3386/w23281",
- "number": "23281",
- "publisher": "National Bureau of Economic Research",
- "title": "Monetary Policy, Bounded Rationality, and Incomplete Markets",
- "type": "report"
+ "source": [
+ "$\n",
+ "\\begin{array}{l}\n",
+ "R(x, i ; \\alpha)=\\eta(1+g) c\\left(l^{*}(x, i ; \\alpha)\\right)^{\\eta(1-\\mu)-1} l^{*}(x, i ; \\alpha)^{(1-\\eta)(1-\\mu)} \\\\\n",
+ "-\\tilde{\\beta}\\left\\{\\sum_{j} \\pi_{i, j} \\eta(1+\\vec{r}) c\\left(l^{*}(\\alpha(x, i), j ; \\alpha)\\right)^{\\eta(1-\\mu)-1} \\cdot l^{*}(\\alpha(x, i), j ; \\alpha)^{(1-\\eta)(1-\\mu)}\\right. \\\\\n",
+ "\\left.+\\zeta \\min (\\alpha(x, i), 0)^{2}\\right\\}\n",
+ "\\end{array}\n",
+ "$\n",
+ "\n",
+ "The computational task done by the author is to find an approximation for $\\alpha(x, i)$-say, $\\alpha^h(x, i)$-which implies that $R(x, i ; \\alpha^h)$ is approximately equal to zero for all $x$ and $i$, which they do by applying a finite element method."
+ ]
},
- "6273435/V8M7KIK5": {
- "URL": "https://www.brookings.edu/wp-content/uploads/2016/03/ByrneEtAl_ProductivityMeasurement_ConferenceDraft.pdf",
- "author": [
- {
- "family": "Byrne",
- "given": "David M."
- },
- {
- "family": "Fernald",
- "given": "John G."
- },
- {
- "family": "Reinsdorf",
- "given": "Marshall B."
- }
- ],
- "genre": "Brookings Papers on Economic Activity",
- "id": "6273435/V8M7KIK5",
- "issued": {
- "year": 2016
- },
- "publisher": "Brookings Institute",
- "title": "Does the United States have a productivity slowdown or a measurement problem?",
- "type": "report"
- },
- "6273435/VDK9EZWA": {
- "URL": "https://ideas.repec.org/p/fip/fedgsq/77.html",
- "abstract": "a speech at the Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, March 10, 2005 and the Homer Jones Lecture, St. Louis, Missouri, on April 14, 2005",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Bernanke",
- "given": "Ben S."
- }
- ],
- "collection-title": "Speech",
- "id": "6273435/VDK9EZWA",
- "issued": {
- "year": 2005
- },
- "language": "en",
- "number": "77",
- "publisher": "Board of Governors of the Federal Reserve System (U.S.)",
- "title": "The global saving glut and the U.S. current account deficit",
- "type": "report"
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "# Subsequent Literature (what came next)\n",
+ "\n",
+ "I found **20** papers in LitMaps that cite *The Optimum Quantity of Debt*.\n",
+ "\n",
+ "The subsequent literature pushes the “debt as liquidity” mechanism into richer heterogeneous-agent policy environments. One frontier is **joint fiscal–monetary design**: debt/tax policy is analyzed alongside monetary policy and liquidity when households are constrained and markets are incomplete (e.g., Bilbiie & Ragot 2020; Grand et al. 2021). Another frontier is **methods and implementation**: improved computational techniques make optimal-policy HA models—especially transition dynamics—more tractable, enabling more realistic experiments and distributional analysis (Le Grand & Ragot 2023).\n",
+ "\n",
+ "Open questions that repeatedly emerge include characterizing **optimal debt paths** (not just steady-state levels), integrating **financial-sector frictions/crises**, and strengthening **empirical validation** of the mechanism and welfare tradeoffs.\n",
+ "\n",
+ "**Most important subsequent papers (where the field is heading):**\n",
+ "1. Le Grand & Ragot (2023), *Optimal Policies with Heterogeneous Agents: Truncation and Transitions*: computational advances for HA optimal policy (esp. transitions).\n",
+ "2. Bilbiie & Ragot (2020), *Optimal monetary policy and liquidity with heterogeneous households*: HA liquidity constraints in optimal monetary policy.\n",
+ "3. Grand et al. (2021), *Optimal fiscal and monetary policy with heterogeneous agents*: integrated multi-instrument policy design.\n",
+ "4. Chakrabarti et al. (2021), *Targeted interventions: Consumption dynamics and distributional effects*: targeted policy + explicit distributional outcomes.\n",
+ "5. Carroll, Dolmas & Young (2021), *The politics of flat taxes*: political feasibility constraints on normative prescriptions.\n",
+ "\n",
+ "(See `subsequent-literature-analysis.md` and `subsequent-literature.bib` in the repo root for the full write-up and BibTeX.)\n"
+ ]
},
- "6273435/WTWTWFWP": {
- "DOI": "10.1257/aer.20110683",
- "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.20110683",
- "abstract": "The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession. (JEL D14, D31, D33, E32, E44, G01, N22)",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Kumhof",
- "given": "Michael"
+ {
+ "cell_type": "markdown",
+ "metadata": {
+ "slideshow": {
+ "slide_type": "slide"
+ }
},
- {
- "family": "Rancière",
- "given": "Romain"
- },
- {
- "family": "Winant",
- "given": "Pablo"
- }
- ],
- "container-title": "American Economic Review",
- "id": "6273435/WTWTWFWP",
- "issue": "3",
- "issued": {
- "month": 3,
- "year": 2015
- },
- "language": "en",
- "page": "1217-1245",
- "page-first": "1217",
- "title": "Inequality, Leverage, and Crises",
- "type": "article-journal",
- "volume": "105"
- },
- "6273435/YS4K82GI": {
- "URL": "https://ideas.repec.org/p/red/sed018/1017.html",
- "abstract": "I quantify the extent to which deterioration of bank balance sheets explains the large contraction in housing prices and consumption experienced by the U.S. during the last recession. I introduce a Banking Sector with balance sheet frictions into a model of long-term collateralized debt with risk of default. Credit supply is endogenously determined and depends on the capitalization of the entire banking sector. Mortgage spreads and endogenous down payments increase in periods when banks are poorly capitalized. I simulate an increase in the stock of housing and a negative income shock to match the decline in house prices between 2006-2009. The model generates changes in consumption, foreclosures and refinance rates similar to those observed in the U.S. between 2006 and 2009. Changes in financial intermediaries’ cost of funding explain, respectively, 38, 22 and 29 percent of the changes in housing prices, foreclosures and consumption generated by the model. These results show that the endogenous response of banks’ credit supply can partially explain how changes in housing prices affect consumption decisions. I use this framework to analyze the impact of debt forgiveness and banks’ recapitalization to mitigate the drop in housing prices and consumption. I also present empirical evidence that balance sheet mechanism implied by the model was operational during this period. In other words, I show that during the great recession, changes in the real estate prices impacted the balance sheet of the banks that reacted by contracting their mortgage credit supply.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Paixao",
- "given": "Nuno"
+ "source": [
+ "\n",
+ "\n",
+ "Link to original paper and replication code\n",
+ "* [Aiyagari-McGrattan](http://aefweb.net/AefArticles/aef040111.pdf)\n",
+ "* [Replication](http://users.cla.umn.edu/~erm/data/sr203/)"
+ ]
+ }
+ ],
+ "metadata": {
+ "celltoolbar": "Slideshow",
+ "cite2c": {
+ "citations": {
+ "6273435/2BJ6FM4X": {
+ "author": [
+ {
+ "family": "Arslan",
+ "given": "Yavuz"
+ },
+ {
+ "family": "Guler",
+ "given": "Bulent"
+ },
+ {
+ "family": "Kuruscu",
+ "given": "Burhanettin"
+ }
+ ],
+ "id": "6273435/2BJ6FM4X",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Bank Balance Sheets and Boom-Bust Cycles",
+ "type": "report"
+ },
+ "6273435/2LKSCVY3": {
+ "DOI": "10.1016/j.jue.2009.11.001",
+ "URL": "http://www.sciencedirect.com/science/article/pii/S0094119009000977",
+ "abstract": "In a recent paper, Leamer (2007) identified housing as an important precursor of the national business cycle. Previous work, on the other hand, has shown that regional cycles may not be synchronous with the aggregate cycle. In this paper, we analyze the relationship between housing and the business cycle at the MSA-level for a set of 51 US cities. We find that declines in house prices are often not followed by declines in that city’s employment. While the growth rates in housing variables appeared to slow ahead of city-level peaks, we find no consistent statistical relationship suggesting a city’s permits or prices influences its business cycle. In fact, we find that national permits are a better leading indicator for a city’s employment than a city’s own permits. This suggest the possibility that housing is merely a proxy for other consumption or wealth indicators.",
+ "accessed": {
+ "day": 6,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Ghent",
+ "given": "Andra C."
+ },
+ {
+ "family": "Owyang",
+ "given": "Michael T."
+ }
+ ],
+ "container-title": "Journal of Urban Economics",
+ "container-title-short": "Journal of Urban Economics",
+ "id": "6273435/2LKSCVY3",
+ "issue": "3",
+ "issued": {
+ "day": 1,
+ "month": 5,
+ "year": 2010
+ },
+ "journalAbbreviation": "Journal of Urban Economics",
+ "page": "336-351",
+ "page-first": "336",
+ "shortTitle": "Is housing the business cycle?",
+ "title": "Is housing the business cycle? Evidence from US cities",
+ "title-short": "Is housing the business cycle?",
+ "type": "article-journal",
+ "volume": "67"
+ },
+ "6273435/3SMCKLDX": {
+ "DOI": "10.1093/rfs/hhw018",
+ "URL": "https://academic.oup.com/rfs/article/29/7/1635/2607168",
+ "abstract": "Abstract. This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on su",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Adelino",
+ "given": "Manuel"
+ },
+ {
+ "family": "Schoar",
+ "given": "Antoinette"
+ },
+ {
+ "family": "Severino",
+ "given": "Felipe"
+ }
+ ],
+ "container-title": "The Review of Financial Studies",
+ "container-title-short": "Rev Financ Stud",
+ "id": "6273435/3SMCKLDX",
+ "issue": "7",
+ "issued": {
+ "day": 1,
+ "month": 7,
+ "year": 2016
+ },
+ "journalAbbreviation": "Rev Financ Stud",
+ "language": "en",
+ "page": "1635-1670",
+ "page-first": "1635",
+ "shortTitle": "Loan Originations and Defaults in the Mortgage Crisis",
+ "title": "Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class",
+ "title-short": "Loan Originations and Defaults in the Mortgage Crisis",
+ "type": "article-journal",
+ "volume": "29"
+ },
+ "6273435/4LMAJ3FI": {
+ "author": [
+ {
+ "family": "Krivenko",
+ "given": "Pavel"
+ }
+ ],
+ "id": "6273435/4LMAJ3FI",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Unemployment and the US Housing Market during the Great Recession",
+ "type": "report"
+ },
+ "6273435/5DTVAPZ9": {
+ "DOI": "10.1111/jofi.12586",
+ "URL": "https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12586",
+ "abstract": "We present a model of credit cycles arising from diagnostic expectations—a belief formation mechanism based on Kahneman and Tversky's representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bordalo",
+ "given": "Pedro"
+ },
+ {
+ "family": "Gennaioli",
+ "given": "Nicola"
+ },
+ {
+ "family": "Shleifer",
+ "given": "Andrei"
+ }
+ ],
+ "container-title": "The Journal of Finance",
+ "id": "6273435/5DTVAPZ9",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 2,
+ "year": 2018
+ },
+ "language": "en",
+ "page": "199-227",
+ "page-first": "199",
+ "title": "Diagnostic Expectations and Credit Cycles",
+ "type": "article-journal",
+ "volume": "73"
+ },
+ "6273435/5EW3ZYSE": {
+ "URL": "https://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html",
+ "abstract": "Paul Krugman Op-Ed column on signs that United States housing bubble has started to deflate (M)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Krugman",
+ "given": "Paul"
+ }
+ ],
+ "container-title": "The New York Times",
+ "id": "6273435/5EW3ZYSE",
+ "issued": {
+ "day": 8,
+ "month": 8,
+ "year": 2005
+ },
+ "language": "en-US",
+ "section": "Opinion",
+ "title": "That Hissing Sound",
+ "type": "article-newspaper"
+ },
+ "6273435/5LQEJQJH": {
+ "DOI": "10.1093/qje/qjq004",
+ "URL": "https://academic.oup.com/qje/article/126/1/373/1901343",
+ "abstract": "Abstract. We investigate whether individual experiences of macroeconomic shocks affect financial risk taking, as often suggested for the generation that experi",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Malmendier",
+ "given": "Ulrike"
+ },
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ }
+ ],
+ "container-title": "The Quarterly Journal of Economics",
+ "container-title-short": "Q J Econ",
+ "id": "6273435/5LQEJQJH",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 2,
+ "year": 2011
+ },
+ "journalAbbreviation": "Q J Econ",
+ "language": "en",
+ "page": "373-416",
+ "page-first": "373",
+ "shortTitle": "Depression Babies",
+ "title": "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*",
+ "title-short": "Depression Babies",
+ "type": "article-journal",
+ "volume": "126"
+ },
+ "6273435/62FERJKI": {
+ "URL": "https://papers.ssrn.com/abstract=3069621",
+ "abstract": "Shared Appreciation Mortgages (SAMs) feature mortgage payments that adjust with house prices. These mortgage contracts are designed to stave off home owner default by providing payment relief in the wake of a large house price shock. SAMs have been hailed as an innovative solution that could prevent the next foreclosure crisis, act as a work-out tool during a crisis, and alleviate fiscal pressure during a downturn. They have inspired Fintech companies to offer home equity contracts. However, the home owner's gains are the mortgage lender's losses. A general equilibrium model with financial intermediaries who channel savings from saver households to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk-sharing. The two types of indexation have opposite implications for wealth inequality.",
+ "author": [
+ {
+ "family": "Greenwald",
+ "given": "Daniel"
+ },
+ {
+ "family": "Landvoigt",
+ "given": "Tim"
+ },
+ {
+ "family": "Van Nieuwerburgh",
+ "given": "Stijn"
+ }
+ ],
+ "genre": "MIT Sloan Research Paper",
+ "id": "6273435/62FERJKI",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "number": "5261-17",
+ "publisher": "MIT",
+ "title": "Financial Fragility with SAM?",
+ "type": "report"
+ },
+ "6273435/6ASZQUFK": {
+ "author": [
+ {
+ "family": "Kahneman",
+ "given": "Daniel"
+ }
+ ],
+ "event-place": "New York",
+ "id": "6273435/6ASZQUFK",
+ "issued": {
+ "year": 2011
+ },
+ "publisher": "Farrar, Straus and Giroux",
+ "publisher-place": "New York",
+ "title": "Thinking, Fast and Slow",
+ "type": "book"
+ },
+ "6273435/6HQGCZHA": {
+ "DOI": "10.1093/qje/qjx017",
+ "URL": "https://academic.oup.com/qje/article/132/4/1755/3854928",
+ "abstract": "Abstract. An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 coun",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Mian",
+ "given": "Atif"
+ },
+ {
+ "family": "Sufi",
+ "given": "Amir"
+ },
+ {
+ "family": "Verner",
+ "given": "Emil"
+ }
+ ],
+ "container-title": "The Quarterly Journal of Economics",
+ "container-title-short": "Q J Econ",
+ "id": "6273435/6HQGCZHA",
+ "issue": "4",
+ "issued": {
+ "day": 1,
+ "month": 11,
+ "year": 2017
+ },
+ "journalAbbreviation": "Q J Econ",
+ "language": "en",
+ "page": "1755-1817",
+ "page-first": "1755",
+ "title": "Household Debt and Business Cycles Worldwide",
+ "type": "article-journal",
+ "volume": "132"
+ },
+ "6273435/8IVI23TT": {
+ "author": [
+ {
+ "family": "Schlafmann",
+ "given": "Kathrin"
+ }
+ ],
+ "genre": "CEPR Discussion Paper",
+ "id": "6273435/8IVI23TT",
+ "issued": {
+ "year": 2016
+ },
+ "number": "11589",
+ "title": "Housing, Mortgages, and Self Control",
+ "type": "report"
+ },
+ "6273435/98I3UQNW": {
+ "author": [
+ {
+ "family": "Minsky",
+ "given": "Hyman P."
+ }
+ ],
+ "id": "6273435/98I3UQNW",
+ "issued": {
+ "year": 1986
+ },
+ "title": "Stabilizing an Unstable Economy",
+ "type": "book"
+ },
+ "6273435/9ERTKWRC": {
+ "author": [
+ {
+ "family": "Garcia",
+ "given": "Daniel"
+ }
+ ],
+ "id": "6273435/9ERTKWRC",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Employment in the Great Recession: How Important were Household Credit Supply Shocks?",
+ "type": "report"
+ },
+ "6273435/9GRH68SP": {
+ "author": [
+ {
+ "family": "Bartscher",
+ "given": "Alina"
+ },
+ {
+ "family": "Schularick",
+ "given": "Moritz"
+ },
+ {
+ "family": "Steins",
+ "given": "Ulrike I."
+ }
+ ],
+ "id": "6273435/9GRH68SP",
+ "issued": {
+ "year": 2017
+ },
+ "title": "The Great American Debt Boom, 1948-2013",
+ "type": "report"
+ },
+ "6273435/A2G7SCE7": {
+ "URL": "https://ideas.repec.org/a/fip/fedkpr/y2007p149-233.html",
+ "abstract": "Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession. Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables. Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have. By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.
(This abstract was borrowed from another version of this item.)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Leamer",
+ "given": "Edward E."
+ }
+ ],
+ "container-title": "Proceedings - Economic Policy Symposium - Jackson Hole",
+ "id": "6273435/A2G7SCE7",
+ "issued": {
+ "year": 2007
+ },
+ "language": "en",
+ "page": "149-233",
+ "page-first": "149",
+ "title": "Housing is the business cycle",
+ "type": "article-journal"
+ },
+ "6273435/AR5CX6Z6": {
+ "author": [
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ },
+ {
+ "family": "Xu",
+ "given": "Zhengyang"
+ }
+ ],
+ "id": "undefined",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "page": "56",
+ "page-first": "56",
+ "title": "Asset Pricing with Fading Memory",
+ "type": "article-journal"
+ },
+ "6273435/AV7DSQTR": {
+ "URL": "https://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-10",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Chudley",
+ "given": "Jody"
+ }
+ ],
+ "container-title": "Business Insider",
+ "id": "6273435/AV7DSQTR",
+ "title": "JFK's father used a simple trick to spot market bubbles — and you can too",
+ "type": "webpage"
+ },
+ "6273435/BL42NIKV": {
+ "author": [
+ {
+ "family": "Finocchiaro",
+ "given": "Daria"
+ },
+ {
+ "family": "Jonsson",
+ "given": "Magnus"
+ },
+ {
+ "family": "Nilsson",
+ "given": "Christian"
+ },
+ {
+ "family": "Strid",
+ "given": "Ingvar"
+ }
+ ],
+ "container-title": "Sveriges Riksbank Economic Review",
+ "id": "6273435/BL42NIKV",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Macroeconomic effects of reducing household debt",
+ "type": "article-journal"
+ },
+ "6273435/BLFT9BEG": {
+ "author": [
+ {
+ "family": "Mackay",
+ "given": "Charles"
+ }
+ ],
+ "id": "6273435/BLFT9BEG",
+ "issued": {
+ "year": 1841
+ },
+ "language": "English",
+ "publisher": "Richard Bentley",
+ "shortTitle": "Extraordinary Popular Delusions",
+ "title": "Extraordinary Popular Delusions and the Madness of Crowds",
+ "title-short": "Extraordinary Popular Delusions",
+ "type": "book"
+ },
+ "6273435/D7FS5MRE": {
+ "URL": "http://www.nber.org/papers/w22903",
+ "abstract": "This paper studies temporary policy incentives designed to address capital overhang by inducing asset demand from buyers in the private market. Using variation across local geographies in ex ante program exposure and a difference-in-differences design, we find that the First-Time Homebuyer Credit induced a cumulative increase in home sales of 397 to 546 thousand, or 7.8 to 10.7 percent, nationally. We find little evidence of a sharp reversal of the policy response; instead, demand comes from several years in the future. The program likely sped the process of reallocating homes from distressed sellers to high value buyers, which stabilized house prices. The response is concentrated in the existing home sales market, implying the stimulative effects of the program were less important than its role in accelerating reallocation.",
+ "accessed": {
+ "day": 9,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Berger",
+ "given": "David"
+ },
+ {
+ "family": "Turner",
+ "given": "Nicholas"
+ },
+ {
+ "family": "Zwick",
+ "given": "Eric"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/D7FS5MRE",
+ "issued": {
+ "month": 12,
+ "year": 2016
+ },
+ "note": "DOI: 10.3386/w22903",
+ "number": "22903",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Stimulating Housing Markets",
+ "type": "report"
+ },
+ "6273435/DCC92Q2Z": {
+ "URL": "http://www.economist.com/special-report/2003/05/29/house-of-cards",
+ "abstract": "In many countries the stockmarket bubble has been replaced by a property-price bubble. Sooner or later it will burst, says Pam Woodall, our economics editor",
+ "accessed": {
+ "day": 6,
+ "month": 9,
+ "year": 2018
+ },
+ "container-title": "The Economist",
+ "id": "6273435/DCC92Q2Z",
+ "issued": {
+ "day": 29,
+ "month": 5,
+ "year": 2003
+ },
+ "title": "House of cards",
+ "type": "article-magazine"
+ },
+ "6273435/EB4C5G4S": {
+ "author": [
+ {
+ "family": "Kindleberger",
+ "given": "Charles P."
+ }
+ ],
+ "id": "6273435/EB4C5G4S",
+ "issued": {
+ "year": 1978
+ },
+ "language": "en",
+ "publisher": "Palgrave Macmillan",
+ "title": "Manias, Panics, and Crashes: A History of Financial Crises",
+ "type": "book"
+ },
+ "6273435/EGT99GAZ": {
+ "author": [
+ {
+ "family": "Walentin",
+ "given": "Karl"
+ },
+ {
+ "family": "Hull",
+ "given": "Isaiah"
+ },
+ {
+ "family": "Olovsson",
+ "given": "Conny"
+ }
+ ],
+ "genre": "Sveriges Riksbank Working Paper Series",
+ "id": "6273435/EGT99GAZ",
+ "issued": {
+ "year": 2018
+ },
+ "number": "349",
+ "title": "The Granular Origins of Aggregate House Price Volatility",
+ "type": "report"
+ },
+ "6273435/EJUQGA4W": {
+ "author": [
+ {
+ "family": "Albanesi",
+ "given": "Stefania"
+ }
+ ],
+ "id": "6273435/EJUQGA4W",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Real Estate Investors and the 2007-2009 Mortgage Crisis",
+ "type": "report"
+ },
+ "6273435/EXL57QX8": {
+ "author": [
+ {
+ "family": "Khan",
+ "given": "Shujaat"
+ }
+ ],
+ "id": "6273435/EXL57QX8",
+ "issued": {
+ "year": 2018
+ },
+ "title": "The Anatomy of Macroprudential Policies in a Heterogeneous Agent Model of Housing Default",
+ "type": "report"
+ },
+ "6273435/HAEFCS8B": {
+ "DOI": "10.1257/aer.91.2.1",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.91.2.1",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Hall",
+ "given": "Robert E."
+ }
+ ],
+ "container-title": "American Economic Review",
+ "id": "6273435/HAEFCS8B",
+ "issue": "2",
+ "issued": {
+ "month": 5,
+ "year": 2001
+ },
+ "language": "en",
+ "page": "1-11",
+ "page-first": "1",
+ "title": "Struggling to Understand the Stock Market",
+ "type": "article-journal",
+ "volume": "91"
+ },
+ "6273435/HRF5MEAR": {
+ "DOI": "10.1086/680584",
+ "URL": "https://www.journals.uchicago.edu/doi/10.1086/680584",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Hall",
+ "given": "Robert E."
+ }
+ ],
+ "container-title": "NBER Macroeconomics Annual",
+ "container-title-short": "NBER Macroeconomics Annual",
+ "id": "6273435/HRF5MEAR",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 1,
+ "year": 2015
+ },
+ "journalAbbreviation": "NBER Macroeconomics Annual",
+ "page": "71-128",
+ "page-first": "71",
+ "title": "Quantifying the Lasting Harm to the US Economy from the Financial Crisis",
+ "type": "article-journal",
+ "volume": "29"
+ },
+ "6273435/HZE378I7": {
+ "URL": "https://www.brookings.edu/wp-content/uploads/2003/06/2003b_bpea_caseshiller.pdf",
+ "abstract": "This paper looks for evidence of a bubble in U.S. housing prices. It analyzes quarterly state-level data over 1985-2002, focusing on the relationship between home prices and selected fundamental variables. Income per capita alone largely explains price changes in all but eight states; in the latter, large price movements are observed unrelated to the fundamentals. Results from a new survey of recent homebuyers in the Los Angeles, San Francisco, Boston, and Milwaukee metropolitan areas are reported. This survey replicates an almost identical 1988 survey and finds, as before, that buyers in most of these markets perceive little risk in their housing investment, have unrealistic expectations about future price increases, and hold economically implausible beliefs about home price behavior—findings consistent with a bubble. Prices in such markets could stall or decline, but only if such declines are simultaneous or spread to other markets are significant effects on the national economy likely.",
+ "author": [
+ {
+ "family": "Case",
+ "given": "Karl E."
+ },
+ {
+ "family": "Shiller",
+ "given": "Robert J."
+ }
+ ],
+ "collection-title": "Brookings Papers on Economic Activity",
+ "id": "6273435/HZE378I7",
+ "issued": {
+ "year": 2003
+ },
+ "publisher": "Brookings Institute",
+ "title": "Is There a Bubble in the Housing Market?",
+ "type": "report"
+ },
+ "6273435/JMNWJTKW": {
+ "DOI": "10.1016/j.iref.2015.02.002",
+ "URL": "http://www.sciencedirect.com/science/article/pii/S1059056015000246",
+ "abstract": "There has been, in recent years, a renewed interest in and a growing recognition of the role played by uncertainty shocks in driving fluctuations in the economy and in asset markets. We create new text-based indicators of both general economic and policy specific uncertainty from New York Times and use them first, to chart changes in the level of uncertainty in the US for the period 1985–2007, second, to determine the role of policy in these swings, and, third to assess their impact on the economy, equity markets, and business cycles. Overall, our results indicate that uncertainty shocks – both general and policy related – depress the level of economic activity, significantly increase stock market volatility, and decrease market returns.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Alexopoulos",
+ "given": "Michelle"
+ },
+ {
+ "family": "Cohen",
+ "given": "Jon"
+ }
+ ],
+ "container-title": "International Review of Economics & Finance",
+ "container-title-short": "International Review of Economics & Finance",
+ "id": "6273435/JMNWJTKW",
+ "issued": {
+ "day": 1,
+ "month": 11,
+ "year": 2015
+ },
+ "journalAbbreviation": "International Review of Economics & Finance",
+ "page": "8-28",
+ "page-first": "8",
+ "shortTitle": "The power of print",
+ "title": "The power of print: Uncertainty shocks, markets, and the economy",
+ "title-short": "The power of print",
+ "type": "article-journal",
+ "volume": "40"
+ },
+ "6273435/JYAC2RG2": {
+ "URL": "https://ideas.repec.org/a/fip/fedker/y2007iqivp115-145nv.92no.4.html",
+ "abstract": "Residential foreclosures in the United States have been rising very rapidly since 2006. In the second quarter of 2007, the share of outstanding mortgages in some stage of foreclosure stood at 1.4 percent, near historic highs and up from less than 1 percent a year earlier. The number of mortgages entering the foreclosure process reached an all-time high in mid-2007, suggesting that the foreclosure surge is likely to get worse before it gets better. ; The foreclosure surge was created by a perfect storm of events. First, in recent years the share of subprime mortgage originations increased substantially. Second, foreclosure rates for adjustable-rate mortgages (ARMs) have increased considerably, especially for subprime ARMs. This increase is largely due to rising short-term interest rates and to payment resets for many nontraditional mortgages. Finally, high loan-to-value originations in recent years, coupled with stagnant or falling home prices, have left many people with insufficient equity to sell or refinance their homes. ; Edmiston and Zalneraitis provide a detailed dissection of the current foreclosure surge. They conclude with a discussion of why the foreclosure situation is likely to get worse over the next one to two years and why it is likely to improve afterward.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Edmiston",
+ "given": "Kelly D."
+ },
+ {
+ "family": "Zalneraitis",
+ "given": "Roger"
+ }
+ ],
+ "container-title": "Economic Review",
+ "id": "6273435/JYAC2RG2",
+ "issue": "Q IV",
+ "issued": {
+ "year": 2007
+ },
+ "language": "en",
+ "page": "115-145",
+ "page-first": "115",
+ "shortTitle": "Rising foreclosures in the United States",
+ "title": "Rising foreclosures in the United States: a perfect storm",
+ "title-short": "Rising foreclosures in the United States",
+ "type": "article-journal"
+ },
+ "6273435/LGD94T7L": {
+ "URL": "https://www.federalreserve.gov/boarddocs/speeches/2004/20040521/default.htm",
+ "author": [
+ {
+ "family": "Gramlich",
+ "given": "Edward M."
+ }
+ ],
+ "id": "6273435/LGD94T7L",
+ "issued": {
+ "year": 2004
+ },
+ "note": "Remarks by Governor Edward M. Gramlich at the Financial Services Roundtable Annual Housing Policy Meeting, Chicago, Illinois.",
+ "title": "Subprime Mortgage Lending: Benefits, Costs, and Challenges",
+ "type": "webpage"
+ },
+ "6273435/MRW6WNVP": {
+ "author": [
+ {
+ "family": "Blinder",
+ "given": "Alan S."
+ }
+ ],
+ "id": "6273435/MRW6WNVP",
+ "issued": {
+ "year": 2013
+ },
+ "publisher": "Penguin Press",
+ "title": "After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead",
+ "type": "book"
+ },
+ "6273435/N2QBSRRP": {
+ "URL": "https://faculty.missouri.edu/~hedlunda/research/housing_boombust_main.pdf",
+ "author": [
+ {
+ "family": "Garriga",
+ "given": "Carlos"
+ },
+ {
+ "family": "Hedlund",
+ "given": "Aaron"
+ }
+ ],
+ "id": "6273435/N2QBSRRP",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Housing Finance, Boom-Bust Episodes, and\nMacroeconomic Fragility",
+ "type": "report"
+ },
+ "6273435/PUJGD86E": {
+ "URL": "http://www.nber.org/chapters/c13907",
+ "accessed": {
+ "day": 9,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Manski",
+ "given": "Charles F."
+ }
+ ],
+ "container-title": "NBER Macroeconomics Annual 2017, volume 32",
+ "id": "6273435/PUJGD86E",
+ "issued": {
+ "day": 10,
+ "month": 4,
+ "year": 2017
+ },
+ "page": "411-471",
+ "page-first": "411",
+ "shortTitle": "Survey Measurement of Probabilistic Macroeconomic Expectations",
+ "title": "Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise",
+ "title-short": "Survey Measurement of Probabilistic Macroeconomic Expectations",
+ "type": "article-journal"
+ },
+ "6273435/Q7UH3SHN": {
+ "DOI": "10.1257/089533005775196769",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/089533005775196769",
+ "abstract": "How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices—both whether there is a bubble and what underlying factors support housing demand—in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market. For a number of reasons, conventional metrics for assessing pricing in the housing market such as price-to-rent ratios or price-to-income ratios generally fail to reflect accurately the state of housing costs. To the eyes of analysts employing such measures, housing markets can appear \"exuberant\" even when houses are in fact reasonably priced. We construct a measure for evaluating the cost of home owning that is standard for economists—the imputed annual rental cost of owning a home, a variant of the user cost of housing—and apply it to 25 years of history across a wide variety of housing markets. This calculation enables us to estimate the time pattern of housing costs within a market. As of the end of 2004, our analysis reveals little evidence of a housing bubble.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Himmelberg",
+ "given": "Charles"
+ },
+ {
+ "family": "Mayer",
+ "given": "Christopher"
+ },
+ {
+ "family": "Sinai",
+ "given": "Todd"
+ }
+ ],
+ "container-title": "Journal of Economic Perspectives",
+ "id": "6273435/Q7UH3SHN",
+ "issue": "4",
+ "issued": {
+ "month": 12,
+ "year": 2005
+ },
+ "language": "en",
+ "page": "67-92",
+ "page-first": "67",
+ "shortTitle": "Assessing High House Prices",
+ "title": "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions",
+ "title-short": "Assessing High House Prices",
+ "type": "article-journal",
+ "volume": "19"
+ },
+ "6273435/TJ86B67S": {
+ "author": [
+ {
+ "family": "Mian",
+ "given": "Atif"
+ },
+ {
+ "family": "Sufi",
+ "given": "Amir"
+ }
+ ],
+ "container-title": "Journal of Economic Perspectives",
+ "id": "6273435/TJ86B67S",
+ "issue": "3",
+ "issued": {
+ "year": 2018
+ },
+ "page": "1-30",
+ "page-first": "1",
+ "title": "Finance and Business Cycles: The Credit-Driven Household Demand Channel",
+ "type": "article-journal",
+ "volume": "32"
+ },
+ "6273435/UWMQ3ND7": {
+ "URL": "http://www.nber.org/papers/w23281",
+ "abstract": "This paper extends the benchmark New-Keynesian model with a representative agent and rational expectations by introducing two key frictions: (1) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally-binding borrowing constraints; and (2) bounded rationality in the form of level-k thinking. Compared to the benchmark model, we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy, which is much more pronounced at long horizons, and offers a potential rationalization of the “forward guidance puzzle”. Each of these frictions, in isolation, would lead to no or much smaller departures from the benchmark model. We conclude that the interaction of bounded rationality and market frictions improves the ability of the model to account for the effects of monetary policy.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Farhi",
+ "given": "Emmanuel"
+ },
+ {
+ "family": "Werning",
+ "given": "Iván"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/UWMQ3ND7",
+ "issued": {
+ "month": 3,
+ "year": 2017
+ },
+ "note": "DOI: 10.3386/w23281",
+ "number": "23281",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Monetary Policy, Bounded Rationality, and Incomplete Markets",
+ "type": "report"
+ },
+ "6273435/V8M7KIK5": {
+ "URL": "https://www.brookings.edu/wp-content/uploads/2016/03/ByrneEtAl_ProductivityMeasurement_ConferenceDraft.pdf",
+ "author": [
+ {
+ "family": "Byrne",
+ "given": "David M."
+ },
+ {
+ "family": "Fernald",
+ "given": "John G."
+ },
+ {
+ "family": "Reinsdorf",
+ "given": "Marshall B."
+ }
+ ],
+ "genre": "Brookings Papers on Economic Activity",
+ "id": "6273435/V8M7KIK5",
+ "issued": {
+ "year": 2016
+ },
+ "publisher": "Brookings Institute",
+ "title": "Does the United States have a productivity slowdown or a measurement problem?",
+ "type": "report"
+ },
+ "6273435/VDK9EZWA": {
+ "URL": "https://ideas.repec.org/p/fip/fedgsq/77.html",
+ "abstract": "a speech at the Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, March 10, 2005 and the Homer Jones Lecture, St. Louis, Missouri, on April 14, 2005",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bernanke",
+ "given": "Ben S."
+ }
+ ],
+ "collection-title": "Speech",
+ "id": "6273435/VDK9EZWA",
+ "issued": {
+ "year": 2005
+ },
+ "language": "en",
+ "number": "77",
+ "publisher": "Board of Governors of the Federal Reserve System (U.S.)",
+ "title": "The global saving glut and the U.S. current account deficit",
+ "type": "report"
+ },
+ "6273435/WTWTWFWP": {
+ "DOI": "10.1257/aer.20110683",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.20110683",
+ "abstract": "The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession. (JEL D14, D31, D33, E32, E44, G01, N22)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Kumhof",
+ "given": "Michael"
+ },
+ {
+ "family": "Rancière",
+ "given": "Romain"
+ },
+ {
+ "family": "Winant",
+ "given": "Pablo"
+ }
+ ],
+ "container-title": "American Economic Review",
+ "id": "6273435/WTWTWFWP",
+ "issue": "3",
+ "issued": {
+ "month": 3,
+ "year": 2015
+ },
+ "language": "en",
+ "page": "1217-1245",
+ "page-first": "1217",
+ "title": "Inequality, Leverage, and Crises",
+ "type": "article-journal",
+ "volume": "105"
+ },
+ "6273435/YS4K82GI": {
+ "URL": "https://ideas.repec.org/p/red/sed018/1017.html",
+ "abstract": "I quantify the extent to which deterioration of bank balance sheets explains the large contraction in housing prices and consumption experienced by the U.S. during the last recession. I introduce a Banking Sector with balance sheet frictions into a model of long-term collateralized debt with risk of default. Credit supply is endogenously determined and depends on the capitalization of the entire banking sector. Mortgage spreads and endogenous down payments increase in periods when banks are poorly capitalized. I simulate an increase in the stock of housing and a negative income shock to match the decline in house prices between 2006-2009. The model generates changes in consumption, foreclosures and refinance rates similar to those observed in the U.S. between 2006 and 2009. Changes in financial intermediaries’ cost of funding explain, respectively, 38, 22 and 29 percent of the changes in housing prices, foreclosures and consumption generated by the model. These results show that the endogenous response of banks’ credit supply can partially explain how changes in housing prices affect consumption decisions. I use this framework to analyze the impact of debt forgiveness and banks’ recapitalization to mitigate the drop in housing prices and consumption. I also present empirical evidence that balance sheet mechanism implied by the model was operational during this period. In other words, I show that during the great recession, changes in the real estate prices impacted the balance sheet of the banks that reacted by contracting their mortgage credit supply.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Paixao",
+ "given": "Nuno"
+ }
+ ],
+ "collection-title": "2018 Meeting Papers",
+ "id": "6273435/YS4K82GI",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "number": "1017",
+ "publisher": "Society for Economic Dynamics",
+ "shortTitle": "Housing Prices and Consumer Spending",
+ "title": "Housing Prices and Consumer Spending: The Bank Balance Sheet Channel",
+ "title-short": "Housing Prices and Consumer Spending",
+ "type": "report"
+ },
+ "6273435/ZNBZENA9": {
+ "URL": "http://www.nber.org/papers/w23863",
+ "abstract": "We revisit La Porta’s (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness heuristic. In this model, analysts forecast future fundamentals from the history of earnings growth, but they over-react to news by exaggerating the probability of states that have become objectively more likely. Intuitively, fast earnings growth predicts future Googles but not as many as analysts believe. We test predictions that distinguish this mechanism from both Bayesian learning and adaptive expectations, and find supportive evidence. A calibration of the model offers a satisfactory account of the key patterns in fundamentals, expectations, and returns.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bordalo",
+ "given": "Pedro"
+ },
+ {
+ "family": "Gennaioli",
+ "given": "Nicola"
+ },
+ {
+ "family": "Porta",
+ "given": "Rafael La"
+ },
+ {
+ "family": "Shleifer",
+ "given": "Andrei"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/ZNBZENA9",
+ "issued": {
+ "month": 9,
+ "year": 2017
+ },
+ "note": "DOI: 10.3386/w23863",
+ "number": "23863",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Diagnostic Expectations and Stock Returns",
+ "type": "report"
+ },
+ "undefined": {
+ "author": [
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ },
+ {
+ "family": "Xu",
+ "given": "Zhengyang"
+ }
+ ],
+ "id": "undefined",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "page": "56",
+ "page-first": "56",
+ "title": "Asset Pricing with Fading Memory",
+ "type": "article-journal"
+ }
}
- ],
- "collection-title": "2018 Meeting Papers",
- "id": "6273435/YS4K82GI",
- "issued": {
- "year": 2018
- },
- "language": "en",
- "number": "1017",
- "publisher": "Society for Economic Dynamics",
- "shortTitle": "Housing Prices and Consumer Spending",
- "title": "Housing Prices and Consumer Spending: The Bank Balance Sheet Channel",
- "title-short": "Housing Prices and Consumer Spending",
- "type": "report"
},
- "6273435/ZNBZENA9": {
- "URL": "http://www.nber.org/papers/w23863",
- "abstract": "We revisit La Porta’s (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness heuristic. In this model, analysts forecast future fundamentals from the history of earnings growth, but they over-react to news by exaggerating the probability of states that have become objectively more likely. Intuitively, fast earnings growth predicts future Googles but not as many as analysts believe. We test predictions that distinguish this mechanism from both Bayesian learning and adaptive expectations, and find supportive evidence. A calibration of the model offers a satisfactory account of the key patterns in fundamentals, expectations, and returns.",
- "accessed": {
- "day": 5,
- "month": 9,
- "year": 2018
- },
- "author": [
- {
- "family": "Bordalo",
- "given": "Pedro"
- },
- {
- "family": "Gennaioli",
- "given": "Nicola"
- },
- {
- "family": "Porta",
- "given": "Rafael La"
- },
- {
- "family": "Shleifer",
- "given": "Andrei"
- }
- ],
- "genre": "Working Paper",
- "id": "6273435/ZNBZENA9",
- "issued": {
- "month": 9,
- "year": 2017
- },
- "note": "DOI: 10.3386/w23863",
- "number": "23863",
- "publisher": "National Bureau of Economic Research",
- "title": "Diagnostic Expectations and Stock Returns",
- "type": "report"
+ "kernelspec": {
+ "display_name": "Python 3",
+ "language": "python",
+ "name": "python3"
},
- "undefined": {
- "author": [
- {
- "family": "Nagel",
- "given": "Stefan"
+ "language_info": {
+ "codemirror_mode": {
+ "name": "ipython",
+ "version": 3
},
- {
- "family": "Xu",
- "given": "Zhengyang"
- }
- ],
- "id": "undefined",
- "issued": {
- "year": 2018
- },
- "language": "en",
- "page": "56",
- "page-first": "56",
- "title": "Asset Pricing with Fading Memory",
- "type": "article-journal"
+ "file_extension": ".py",
+ "mimetype": "text/x-python",
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+ "nbconvert_exporter": "python",
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diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.md b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt.md
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@@ -0,0 +1,181 @@
+---
+jupytext:
+ text_representation:
+ extension: .md
+ format_name: myst
+ format_version: 0.13
+ jupytext_version: 1.19.1
+kernelspec:
+ display_name: Python 3
+ language: python
+ name: python3
+---
+
++++ {"slideshow": {"slide_type": "slide"}}
+
+The Optimum Quantity of Debt
+
+Author: S. Rao Aiyagari and Ellen R. McGrattan
+Journal of Monetary Economics 42 (1998)
+
+Slides by: Syareza Tobing (Ray)
+ February 2021
+Edits by: Yiran Ma (Emma) (Feb 2026)
+
++++ {"slideshow": {"slide_type": "slide"}}
+
+# I. Summary
+
+* The paper undertakes a normative exercise to calculate optimum quantity of risk-free public debt and the welfare cost of being outside the optimum using US data.
+
+
++++ {"slideshow": {"slide_type": "fragment"}}
+
+* It studies economies with a large number of infinitely lived households whose saving behaviour is influenced by precautionary saving motives and borrowing constraints
+
++++ {"slideshow": {"slide_type": "fragment"}}
+
+* It employs two models;
+ * Inelastic labor supply and lump-sum taxes
+ * Elastic labor supply and proportional taxes (benchmark)
+
++++ {"slideshow": {"slide_type": "subslide"}}
+
+Effects of government debt on welfare:
+* An increase in debt increases the return on assets increasing welfare (+)
+* Taxes have distributional effects which lowers welfare (-)
+* Crowding out of capital which reduces percapita consumption (-)
+
++++ {"slideshow": {"slide_type": "subslide"}}
+
+* It finds that the welfare gains to being at the optimum rather than the US level is trivially small
+
+
+
+
++++
+
+# Prior Literature (what this paper builds on)
+
+Aiyagari & McGrattan (1998) builds on the Bewley–Aiyagari incomplete-markets tradition, where households face **uninsurable idiosyncratic risk** and **borrowing constraints**, generating **precautionary saving** and a non-degenerate wealth distribution (Bewley 1983; Aiyagari 1994). Within this framework, the paper studies government debt not just as a financing device, but as a **liquid safe asset** that can relax household liquidity constraints—an idea closely related to the “public debt as private liquidity” perspective (Woodford 1990).
+
+The key gap the paper addresses is quantitative and normative: earlier work established the mechanisms (liquidity benefits vs. tax/distortion and crowding-out costs), but did not pin down **how much** risk-free public debt is optimal in a calibrated heterogeneous-agent general equilibrium model with taxes.
+
+**Key foundational papers (3–5):**
+- Bewley (1983), *A difficulty with the optimum quantity of money*: canonical incomplete-markets/liquidity-constraint framework.
+- Aiyagari (1994), *Uninsured idiosyncratic risk and aggregate saving*: quantitative GE version with capital and wealth distribution.
+- Woodford (1990), *Public debt as private liquidity*: debt as liquidity and a reason Ricardian equivalence can fail.
+- Chamley (1986), *Optimal taxation of capital income*: benchmark for thinking about distortionary tax costs in GE.
+- Barro (1979), *On the determination of the public debt*: Ricardian benchmark the constrained-agent setting departs from.
+
++++ {"slideshow": {"slide_type": "slide"}}
+
+# II. The Model
+
+### A growth model with uninsured idiosyncratic shocks
+
++++ {"slideshow": {"slide_type": "subslide"}}
+
+* The model employed is an augmented version of the model in Aiyagari (1994)
+ * Augmented to permit growth and to include government debt, lump-sum taxes and government consumption.
+* The consumer's problem is:
+
++++ {"slideshow": {"slide_type": "fragment"}}
+
+$\max _{\left\{\tilde{c}_{t}, \tilde{a}_{t+1}\right\}} \quad E\left[Y_{0}^{1-v} \sum_{t=0}^{\infty}\left[\beta(1+g)^{1-v}\right]^{t} \tilde{c}_{t}^{1-v} /(1-v) \mid \tilde{a}_{0}, e_{0}\right]$
+
+subject to
+
+$\begin{array}{l}
+\tilde{c}_{t}+(1+g) \tilde{a}_{t+1} \leq(1+r) \tilde{a}_{t}+\tilde{w} e_{t}-\tau \\
+\tilde{c}_{t} \geq 0, \tilde{a}_{t} \geq 0, t \geq 0
+\end{array}$
+
+$
+\\
+$
+
+$
+\begin{align}
+ Y &: per \ capita \ output \\
+ \beta &: discount \ factor \\
+ g &: rate \ of \ technical \ progress \\
+ v &: relative \ risk \ aversion \ coefficient \\
+ \tilde{c} &: output \ normalized \ per \ capita \ consumption \\
+ \tilde{a} &: output \ normalized \ per \ capita \ asset \ held \ by \ consumers \\
+ \tilde{w} &: output \ normalized \ per \ capita \ wage \\
+ e &: individual \ labor \ productivity
+\end{align}
+$
+
++++ {"slideshow": {"slide_type": "subslide"}}
+
+* The effect of an increase of the quantity of debt on welfare is captured by the following welfare criterion
+
+$\Omega=\iint V(a, e) \mathrm{d} H(a, e)$
+
+where:
+
+$
+\begin{align}
+ V(a, e) &: optimal \ value \ function \\
+ H &: steady-state \ joint \ distribution \ of \ assets \ and \ productivity
+\end{align}
+$
+
++++ {"slideshow": {"slide_type": "fragment"}}
+
+The optimality criterion is utilitzed for three reasons:
+* Can be thought of as a utilitarian social welfare function
+* Can be though of as a steady-state ex ante welfare
+* Computationally tractable
+
++++ {"slideshow": {"slide_type": "slide"}}
+
+# III Computational Method
+
+$
+\begin{array}{l}
+\max _{\left\{\tilde{c}_{t}, l_{t}, \tilde{a}_{t+1}\right\}} \quad E\left[\sum_{t=0}^{\infty} \tilde{\beta}^{t}\left\{\frac{\left(\tilde{c}_{t}^{\eta} l_{t}^{1-\eta}\right)^{1-\mu}}{1-\mu}+\frac{1}{3} \zeta\left(\min \left(\tilde{a}_{t}, 0\right)^{3}+\min \left(1-l_{t}, 0\right)^{3}\right)\right\} \mid \tilde{a}_{0}, e_{0}\right] \\
+\text { subject to } \tilde{c}_{t}+(1+g) \tilde{a}_{t+1} \leq(1+\bar{r}) \tilde{a}_{t}+\bar{w} e_{t}\left(1-l_{t}\right)+\chi
+\end{array}
+$
+
++++ {"slideshow": {"slide_type": "subslide"}}
+
+$
+\begin{array}{l}
+R(x, i ; \alpha)=\eta(1+g) c\left(l^{*}(x, i ; \alpha)\right)^{\eta(1-\mu)-1} l^{*}(x, i ; \alpha)^{(1-\eta)(1-\mu)} \\
+-\tilde{\beta}\left\{\sum_{j} \pi_{i, j} \eta(1+\vec{r}) c\left(l^{*}(\alpha(x, i), j ; \alpha)\right)^{\eta(1-\mu)-1} \cdot l^{*}(\alpha(x, i), j ; \alpha)^{(1-\eta)(1-\mu)}\right. \\
+\left.+\zeta \min (\alpha(x, i), 0)^{2}\right\}
+\end{array}
+$
+
+The computational task done by the author is to find an approximation for $\alpha(x, i)$-say, $\alpha^h(x, i)$-which implies that $R(x, i ; \alpha^h)$ is approximately equal to zero for all $x$ and $i$, which they do by applying a finite element method.
+
++++
+
+# Subsequent Literature (what came next)
+
+I found **20** papers in LitMaps that cite *The Optimum Quantity of Debt*.
+
+The subsequent literature pushes the “debt as liquidity” mechanism into richer heterogeneous-agent policy environments. One frontier is **joint fiscal–monetary design**: debt/tax policy is analyzed alongside monetary policy and liquidity when households are constrained and markets are incomplete (e.g., Bilbiie & Ragot 2020; Grand et al. 2021). Another frontier is **methods and implementation**: improved computational techniques make optimal-policy HA models—especially transition dynamics—more tractable, enabling more realistic experiments and distributional analysis (Le Grand & Ragot 2023).
+
+Open questions that repeatedly emerge include characterizing **optimal debt paths** (not just steady-state levels), integrating **financial-sector frictions/crises**, and strengthening **empirical validation** of the mechanism and welfare tradeoffs.
+
+**Most important subsequent papers (where the field is heading):**
+1. Le Grand & Ragot (2023), *Optimal Policies with Heterogeneous Agents: Truncation and Transitions*: computational advances for HA optimal policy (esp. transitions).
+2. Bilbiie & Ragot (2020), *Optimal monetary policy and liquidity with heterogeneous households*: HA liquidity constraints in optimal monetary policy.
+3. Grand et al. (2021), *Optimal fiscal and monetary policy with heterogeneous agents*: integrated multi-instrument policy design.
+4. Chakrabarti et al. (2021), *Targeted interventions: Consumption dynamics and distributional effects*: targeted policy + explicit distributional outcomes.
+5. Carroll, Dolmas & Young (2021), *The politics of flat taxes*: political feasibility constraints on normative prescriptions.
+
+(See `subsequent-literature-analysis.md` and `subsequent-literature.bib` in the repo root for the full write-up and BibTeX.)
+
++++ {"slideshow": {"slide_type": "slide"}}
+
+
+
+Link to original paper and replication code
+* [Aiyagari-McGrattan](http://aefweb.net/AefArticles/aef040111.pdf)
+* [Replication](http://users.cla.umn.edu/~erm/data/sr203/)
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_intro.ipynb b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_intro.ipynb
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index 00000000..e14244a8
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_intro.ipynb
@@ -0,0 +1,33 @@
+{
+ "cells": [
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "# The Optimum Quantity of Debt\n",
+ "\n",
+ "**Authors:** S. Rao Aiyagari and Ellen R. McGrattan \n",
+ "**Year:** 1998 \n",
+ "**Venue:** Journal of Monetary Economics 42\n",
+ "\n",
+ "---\n",
+ "\n",
+ "**Original ballpark contributor:** Syareza Tobing (Ray), February 2021 \n",
+ "**Updated by:** Emma Yiran Ma, February 2026"
+ ]
+ }
+ ],
+ "metadata": {
+ "kernelspec": {
+ "display_name": "Python 3",
+ "language": "python",
+ "name": "python3"
+ },
+ "language_info": {
+ "name": "python",
+ "version": "3.10.0"
+ }
+ },
+ "nbformat": 4,
+ "nbformat_minor": 4
+}
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_prior-literature.ipynb b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_prior-literature.ipynb
new file mode 100644
index 00000000..bfdbff78
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_prior-literature.ipynb
@@ -0,0 +1,51 @@
+{
+ "cells": [
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## Prior Literature\n",
+ "\n",
+ "Aiyagari & McGrattan’s analysis of the welfare effects of government debt sits at the intersection of (i) **incomplete-markets macro** with idiosyncratic risk and borrowing constraints and (ii) **normative public finance** where debt is financed by taxes that can be distortionary. In this environment, public debt is not just a financing tool: it can function as a **liquid safe asset** that relaxes households’ self-insurance constraints.\n",
+ "\n",
+ "### Conceptual building blocks\n",
+ "\n",
+ "- **Incomplete markets + precautionary saving**: With uninsured idiosyncratic risk and borrowing constraints, households accumulate assets for self-insurance. {cite:t}`Bewley1983-lj`\n",
+ "- **Quantitative heterogeneous-agent GE**: Embeds the Bewley logic in a full production economy and characterizes the induced wealth distribution and aggregate saving. {cite:t}`Aiyagari1994-kq`\n",
+ "- **Debt as liquidity (failure of Ricardian equivalence)**: When some agents are liquidity constrained, higher public debt can raise welfare by increasing the share of liquid assets in private portfolios. {cite:t}`Woodford1990-ze`\n",
+ "- **Fiscal costs via optimal taxation**: Debt has to be serviced; financing via taxes can create efficiency costs that are central in normative evaluation. {cite:t}`Chamley1986-pw`\n",
+ "- **Representative-agent benchmark**: Ricardian equivalence provides the baseline that breaks once borrowing constraints / market incompleteness are introduced. {cite:t}`Barro1979-px`\n",
+ "\n",
+ "### What {cite:t}`aiyagari1998` adds\n",
+ "\n",
+ "The prior literature establishes the mechanisms (liquidity benefits vs. fiscal/tax costs), but it does not pin down **how large** the welfare gains are or **which debt level** is optimal in a calibrated heterogeneous-agent general equilibrium model. {cite:t}`aiyagari1998` combines the above ingredients to quantify the optimal debt-to-output ratio and the welfare loss from being away from the optimum.\n",
+ "\n",
+ "### Key foundational papers (what to remember)\n",
+ "\n",
+ "- **{cite:t}`Bewley1983-lj`** — *A difficulty with the optimum quantity of money*: Introduces the canonical self-insurance framework with idiosyncratic risk and borrowing constraints. It explains why liquidity constraints generate precautionary saving and a non-degenerate wealth distribution.\n",
+ "\n",
+ "- **{cite:t}`Aiyagari1994-kq`** — *Uninsured idiosyncratic risk and aggregate saving*: Provides a quantitative general equilibrium version of the Bewley framework with production. It supplies the computational/GE backbone that later papers (including {cite:t}`aiyagari1998`) use for calibrated welfare comparisons.\n",
+ "\n",
+ "- **{cite:t}`Woodford1990-ze`** — *Public debt as private liquidity*: Makes the key point that public debt can improve efficiency by supplying liquidity when private credit is imperfect. This motivates why more debt can raise welfare for constrained households even if it must be repaid through future taxes.\n",
+ "\n",
+ "- **{cite:t}`Chamley1986-pw`** — *Optimal taxation of capital income in general equilibrium*: A benchmark for thinking about distortionary tax financing in dynamic GE. It motivates treating debt policy as a welfare problem with potentially important long-run tax wedges.\n",
+ "\n",
+ "- **{cite:t}`Barro1979-px`** — *On the determination of the public debt*: The representative-agent Ricardian benchmark. Its assumptions highlight exactly what incomplete markets and borrowing constraints change in the debt-welfare analysis.\n",
+ "\n"
+ ]
+ }
+ ],
+ "metadata": {
+ "kernelspec": {
+ "display_name": "Python 3",
+ "language": "python",
+ "name": "python3"
+ },
+ "language_info": {
+ "name": "python",
+ "version": "3.10.0"
+ }
+ },
+ "nbformat": 4,
+ "nbformat_minor": 4
+}
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_subsequent-literature.ipynb b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_subsequent-literature.ipynb
new file mode 100644
index 00000000..d80e8dab
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_subsequent-literature.ipynb
@@ -0,0 +1,60 @@
+{
+ "cells": [
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## Subsequent Literature\n",
+ "\n",
+ "Since the publication of {cite:t}`aiyagari1998`, a substantial body of work has extended the core insight that government debt can serve as a welfare-improving liquid asset in economies with heterogeneous, borrowing-constrained households. The papers below all cite {cite:t}`aiyagari1998` and push the analysis in new directions. We organize them into four broad themes.\n",
+ "\n",
+ "### 1. Joint fiscal–monetary policy design\n",
+ "\n",
+ "{cite:t}`aiyagari1998` focused on the fiscal side: how much debt should the government issue, given the trade-off between liquidity benefits and tax costs? A natural next step is to ask how **monetary policy** interacts with that trade-off when households are heterogeneous.\n",
+ "\n",
+ "- {cite:t}`optimal_bilbiie_2020` study optimal monetary policy in an economy where households differ in their access to liquidity. They show that the central bank's interest-rate policy has distributional consequences that a representative-agent model misses, because changes in the real rate alter the value of the government's outstanding debt as a liquid store of value.\n",
+ "- {cite:t}`optimal_grand_2021` extend this further to **joint** fiscal and monetary policy, asking what combination of debt, taxes, and interest rates maximizes welfare when agents are heterogeneous. Their work highlights that the instruments are complementary: the optimal debt level depends on how aggressively monetary policy is used, and vice versa.\n",
+ "\n",
+ "### 2. Optimal public debt: new models and quantitative updates\n",
+ "\n",
+ "Several papers revisit the optimal-debt question itself with richer model ingredients or updated calibrations.\n",
+ "\n",
+ "- {cite:t}`optimal_chatterjee_2017` provide an explicit \"redux\" of the optimal public debt problem, incorporating productive public expenditure alongside the liquidity and tax channels in {cite:t}`aiyagari1998`. They find that the optimal debt-to-output ratio can shift substantially when government spending is productive rather than purely wasteful.\n",
+ "- {cite:t}`32_derasmo_2016` take a broader perspective on debt sustainability, asking not just \"what is optimal?\" but \"what is sustainable?\" in models with default risk and heterogeneous agents. This connects the normative question in {cite:t}`aiyagari1998` to the positive question of sovereign debt crises.\n",
+ "- {cite:t}`public_kaas_2016` examines how public debt crowds out private capital and affects total factor productivity when firms, not just households, face financial frictions. This adds a supply-side channel that {cite:t}`aiyagari1998` abstracted from.\n",
+ "- {cite:t}`welfareimproving_viegas_2013` analyze welfare-improving government behavior in a heterogeneous-agent model, showing that the distributional consequences of debt policy depend critically on the joint distribution of wealth and productivity.\n",
+ "\n",
+ "### 3. Distributional effects and targeted policy\n",
+ "\n",
+ "A recurring lesson from {cite:t}`aiyagari1998` is that aggregate welfare numbers can mask large differences across household types. Later work makes this distributional dimension the central object of analysis.\n",
+ "\n",
+ "- {cite:t}`targeted_chakrabarti_2021` study targeted fiscal interventions and show that consumption dynamics and welfare gains differ sharply across the wealth distribution. Their results underscore that *who* receives the liquidity benefit of public debt matters as much as the aggregate level.\n",
+ "- {cite:t}`politics_carroll_2021` bring political economy into the picture. Even if the planner's optimal debt level is well-defined, actual policy emerges from a political process. They analyze how tax-structure preferences vary across the wealth distribution and how this shapes equilibrium fiscal policy.\n",
+ "\n",
+ "### 4. Computational methods for heterogeneous-agent optimal policy\n",
+ "\n",
+ "A practical barrier to extending {cite:t}`aiyagari1998` has been computational: solving for optimal policy in HA models—especially along transition paths—is hard.\n",
+ "\n",
+ "- {cite:t}`optimal_legrand_2023` develop truncation and approximation methods that make it feasible to compute optimal policies with transitions in large-scale HA economies. This is important because {cite:t}`aiyagari1998` characterized the optimal *steady-state* debt level, but policy-makers also need guidance on how to *get there* from the current level.\n",
+ "\n",
+ "### Summary\n",
+ "\n",
+ "The subsequent literature takes the welfare trade-off in {cite:t}`aiyagari1998`—liquidity benefits for constrained households versus tax/crowding-out costs—and enriches it along four dimensions: (i) adding monetary policy as a complementary instrument, (ii) introducing richer fiscal channels (productive spending, default risk, firm frictions), (iii) foregrounding distributional and political-economy considerations, and (iv) developing the computational tools needed to study transition dynamics. Together, these contributions show that the \"optimum quantity of debt\" remains a productive research question more than two decades after the original paper.\n",
+ "\n"
+ ]
+ }
+ ],
+ "metadata": {
+ "kernelspec": {
+ "display_name": "Python 3",
+ "language": "python",
+ "name": "python3"
+ },
+ "language_info": {
+ "name": "python",
+ "version": "3.10.0"
+ }
+ },
+ "nbformat": 4,
+ "nbformat_minor": 4
+}
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_summary.ipynb b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_summary.ipynb
new file mode 100644
index 00000000..34d2890c
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/OptimumDebt_summary.ipynb
@@ -0,0 +1,1323 @@
+{
+ "cells": [
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "# Summary\n",
+ "\n",
+ "Related sections: {doc}`OptimumDebt_intro`, {doc}`OptimumDebt_prior-literature`, and {doc}`OptimumDebt_subsequent-literature`.\n",
+ "\n",
+ "* The paper undertakes a normative exercise to calculate optimum quantity of risk-free public debt and the welfare cost of being outside the optimum using US data.\n",
+ "\n",
+ ""
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "* It studies economies with a large number of infinitely lived households whose saving behaviour is influenced by precautionary saving motives and borrowing constraints"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "* It employs two models; \n",
+ " * Inelastic labor supply and lump-sum taxes\n",
+ " * Elastic labor supply and proportional taxes (benchmark)"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "Effects of government debt on welfare:\n",
+ "* An increase in debt increases the return on assets increasing welfare (+)\n",
+ "* Taxes have distributional effects which lowers welfare (-)\n",
+ "* Crowding out of capital which reduces per capita consumption (-)"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "* It finds that the welfare gains to being at the optimum rather than the US level is trivially small\n",
+ "\n",
+ "\n",
+ " "
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## Prior Literature (what this paper builds on)\n",
+ "\n",
+ "{cite:t}`aiyagari1998` builds on the Bewley–Aiyagari incomplete-markets tradition, where households face **uninsurable idiosyncratic risk** and **borrowing constraints**, generating **precautionary saving** and a non-degenerate wealth distribution ({cite:t}`Bewley1983-lj`; {cite:t}`Aiyagari1994-kq`). Within this framework, the paper studies government debt not just as a financing device, but as a **liquid safe asset** that can relax household liquidity constraints—an idea closely related to the “public debt as private liquidity” perspective ({cite:p}`Woodford1990-ze`).\n",
+ "\n",
+ "The key gap the paper addresses is quantitative and normative: earlier work established the mechanisms (liquidity benefits vs. tax/distortion and crowding-out costs), but did not pin down **how much** risk-free public debt is optimal in a calibrated heterogeneous-agent general equilibrium model with taxes.\n",
+ "\n",
+ "**Key foundational papers (3–5):**\n",
+ "- {cite:t}`Bewley1983-lj`, *A difficulty with the optimum quantity of money*: canonical incomplete-markets/liquidity-constraint framework.\n",
+ "- {cite:t}`Aiyagari1994-kq`, *Uninsured idiosyncratic risk and aggregate saving*: quantitative GE version with capital and wealth distribution.\n",
+ "- {cite:t}`Woodford1990-ze`, *Public debt as private liquidity*: debt as liquidity and a reason Ricardian equivalence can fail.\n",
+ "- {cite:t}`Chamley1986-pw`, *Optimal taxation of capital income*: benchmark for thinking about distortionary tax costs in GE.\n",
+ "- {cite:t}`Barro1979-px`, *On the determination of the public debt*: Ricardian benchmark the constrained-agent setting departs from.\n"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## II. The Model\n",
+ "\n",
+ "#### A growth model with uninsured idiosyncratic shocks"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "* The model employed is an augmented version of the model in {cite:t}`Aiyagari1994-kq`\n",
+ " * Augmented to permit growth and to include government debt, lump-sum taxes and government consumption.\n",
+ "* The consumer's problem is:"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "$\\max _{\\left\\{\\tilde{c}_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[Y_{0}^{1-v} \\sum_{t=0}^{\\infty}\\left[\\beta(1+g)^{1-v}\\right]^{t} \\tilde{c}_{t}^{1-v} /(1-v) \\mid \\tilde{a}_{0}, e_{0}\\right]$\n",
+ "\n",
+ "subject to\n",
+ "\n",
+ "$\\begin{array}{l}\n",
+ "\\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+r) \\tilde{a}_{t}+\\tilde{w} e_{t}-\\tau \\\\\n",
+ "\\tilde{c}_{t} \\geq 0, \\tilde{a}_{t} \\geq 0, t \\geq 0\n",
+ "\\end{array}$\n",
+ "\n",
+ "$\n",
+ "\\\\\n",
+ "$\n",
+ "\n",
+ "$\n",
+ "\\begin{align}\n",
+ " Y &: per \\ capita \\ output \\\\\n",
+ " \\beta &: discount \\ factor \\\\ \n",
+ " g &: rate \\ of \\ technical \\ progress \\\\\n",
+ " v &: relative \\ risk \\ aversion \\ coefficient \\\\\n",
+ " \\tilde{c} &: output \\ normalized \\ per \\ capita \\ consumption \\\\\n",
+ " \\tilde{a} &: output \\ normalized \\ per \\ capita \\ asset \\ held \\ by \\ consumers \\\\\n",
+ " \\tilde{w} &: output \\ normalized \\ per \\ capita \\ wage \\\\\n",
+ " e &: individual \\ labor \\ productivity\n",
+ "\\end{align}\n",
+ "$"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "* The effect of an increase of the quantity of debt on welfare is captured by the following welfare criterion\n",
+ "\n",
+ "$\\Omega=\\iint V(a, e) \\mathrm{d} H(a, e)$\n",
+ "\n",
+ "where:\n",
+ "\n",
+ "$\n",
+ "\\begin{align}\n",
+ " V(a, e) &: optimal \\ value \\ function \\\\\n",
+ " H &: steady-state \\ joint \\ distribution \\ of \\ assets \\ and \\ productivity\n",
+ "\\end{align}\n",
+ "$"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "The optimality criterion is utilized for three reasons:\n",
+ "* Can be thought of as a utilitarian social welfare function\n",
+ "* Can be thought of as a steady-state ex ante welfare\n",
+ "* Computationally tractable"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## III Computational Method\n",
+ "\n",
+ "$\n",
+ "\\begin{array}{l}\n",
+ "\\max _{\\left\\{\\tilde{c}_{t}, l_{t}, \\tilde{a}_{t+1}\\right\\}} \\quad E\\left[\\sum_{t=0}^{\\infty} \\tilde{\\beta}^{t}\\left\\{\\frac{\\left(\\tilde{c}_{t}^{\\eta} l_{t}^{1-\\eta}\\right)^{1-\\mu}}{1-\\mu}+\\frac{1}{3} \\zeta\\left(\\min \\left(\\tilde{a}_{t}, 0\\right)^{3}+\\min \\left(1-l_{t}, 0\\right)^{3}\\right)\\right\\} \\mid \\tilde{a}_{0}, e_{0}\\right] \\\\\n",
+ "\\text { subject to } \\tilde{c}_{t}+(1+g) \\tilde{a}_{t+1} \\leq(1+\\bar{r}) \\tilde{a}_{t}+\\bar{w} e_{t}\\left(1-l_{t}\\right)+\\chi\n",
+ "\\end{array}\n",
+ "$"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "$\n",
+ "\\begin{array}{l}\n",
+ "R(x, i ; \\alpha)=\\eta(1+g) c\\left(l^{*}(x, i ; \\alpha)\\right)^{\\eta(1-\\mu)-1} l^{*}(x, i ; \\alpha)^{(1-\\eta)(1-\\mu)} \\\\\n",
+ "-\\tilde{\\beta}\\left\\{\\sum_{j} \\pi_{i, j} \\eta(1+\\vec{r}) c\\left(l^{*}(\\alpha(x, i), j ; \\alpha)\\right)^{\\eta(1-\\mu)-1} \\cdot l^{*}(\\alpha(x, i), j ; \\alpha)^{(1-\\eta)(1-\\mu)}\\right. \\\\\n",
+ "\\left.+\\zeta \\min (\\alpha(x, i), 0)^{2}\\right\\}\n",
+ "\\end{array}\n",
+ "$\n",
+ "\n",
+ "The computational task done by the author is to find an approximation for $\\alpha(x, i)$-say, $\\alpha^h(x, i)$-which implies that $R(x, i ; \\alpha^h)$ is approximately equal to zero for all $x$ and $i$, which they do by applying a finite element method."
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "## Subsequent Literature (what came next)\n",
+ "\n",
+ "I found **20** papers in LitMaps that cite *The Optimum Quantity of Debt*.\n",
+ "\n",
+ "The subsequent literature pushes the “debt as liquidity” mechanism into richer heterogeneous-agent policy environments. One frontier is **joint fiscal–monetary design**: debt/tax policy is analyzed alongside monetary policy and liquidity when households are constrained and markets are incomplete (e.g., {cite:t}`optimal_bilbiie_2020`; {cite:t}`optimal_grand_2021`). Another frontier is **methods and implementation**: improved computational techniques make optimal-policy HA models—especially transition dynamics—more tractable, enabling more realistic experiments and distributional analysis ({cite:t}`optimal_legrand_2023`).\n",
+ "\n",
+ "Open questions that repeatedly emerge include characterizing **optimal debt paths** (not just steady-state levels), integrating **financial-sector frictions/crises**, and strengthening **empirical validation** of the mechanism and welfare tradeoffs.\n",
+ "\n",
+ "**Most important subsequent papers (where the field is heading):**\n",
+ "1. {cite:t}`optimal_legrand_2023`, *Optimal Policies with Heterogeneous Agents: Truncation and Transitions*: computational advances for HA optimal policy (esp. transitions).\n",
+ "2. {cite:t}`optimal_bilbiie_2020`, *Optimal monetary policy and liquidity with heterogeneous households*: HA liquidity constraints in optimal monetary policy.\n",
+ "3. {cite:t}`optimal_grand_2021`, *Optimal fiscal and monetary policy with heterogeneous agents*: integrated multi-instrument policy design.\n",
+ "4. {cite:t}`targeted_chakrabarti_2021`, *Targeted interventions: Consumption dynamics and distributional effects*: targeted policy + explicit distributional outcomes.\n",
+ "5. {cite:t}`politics_carroll_2021`, *The politics of flat taxes*: political feasibility constraints on normative prescriptions.\n",
+ "\n",
+ "(See `subsequent-literature-analysis.md` and `subsequent-literature.bib` in the repo root for the full write-up and BibTeX.)\n"
+ ]
+ },
+ {
+ "cell_type": "markdown",
+ "metadata": {},
+ "source": [
+ "\n",
+ "\n",
+ "Link to original paper and replication code\n",
+ "* [{cite:t}`aiyagari1998`](http://aefweb.net/AefArticles/aef040111.pdf)\n",
+ "* [Replication](http://users.cla.umn.edu/~erm/data/sr203/)"
+ ]
+ }
+ ],
+ "metadata": {
+ "celltoolbar": "Slideshow",
+ "cite2c": {
+ "citations": {
+ "6273435/2BJ6FM4X": {
+ "author": [
+ {
+ "family": "Arslan",
+ "given": "Yavuz"
+ },
+ {
+ "family": "Guler",
+ "given": "Bulent"
+ },
+ {
+ "family": "Kuruscu",
+ "given": "Burhanettin"
+ }
+ ],
+ "id": "6273435/2BJ6FM4X",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Bank Balance Sheets and Boom-Bust Cycles",
+ "type": "report"
+ },
+ "6273435/2LKSCVY3": {
+ "DOI": "10.1016/j.jue.2009.11.001",
+ "URL": "http://www.sciencedirect.com/science/article/pii/S0094119009000977",
+ "abstract": "In a recent paper, Leamer (2007) identified housing as an important precursor of the national business cycle. Previous work, on the other hand, has shown that regional cycles may not be synchronous with the aggregate cycle. In this paper, we analyze the relationship between housing and the business cycle at the MSA-level for a set of 51 US cities. We find that declines in house prices are often not followed by declines in that city’s employment. While the growth rates in housing variables appeared to slow ahead of city-level peaks, we find no consistent statistical relationship suggesting a city’s permits or prices influences its business cycle. In fact, we find that national permits are a better leading indicator for a city’s employment than a city’s own permits. This suggest the possibility that housing is merely a proxy for other consumption or wealth indicators.",
+ "accessed": {
+ "day": 6,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Ghent",
+ "given": "Andra C."
+ },
+ {
+ "family": "Owyang",
+ "given": "Michael T."
+ }
+ ],
+ "container-title": "Journal of Urban Economics",
+ "container-title-short": "Journal of Urban Economics",
+ "id": "6273435/2LKSCVY3",
+ "issue": "3",
+ "issued": {
+ "day": 1,
+ "month": 5,
+ "year": 2010
+ },
+ "journalAbbreviation": "Journal of Urban Economics",
+ "page": "336-351",
+ "page-first": "336",
+ "shortTitle": "Is housing the business cycle?",
+ "title": "Is housing the business cycle? Evidence from US cities",
+ "title-short": "Is housing the business cycle?",
+ "type": "article-journal",
+ "volume": "67"
+ },
+ "6273435/3SMCKLDX": {
+ "DOI": "10.1093/rfs/hhw018",
+ "URL": "https://academic.oup.com/rfs/article/29/7/1635/2607168",
+ "abstract": "Abstract. This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular belief, which focuses on su",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Adelino",
+ "given": "Manuel"
+ },
+ {
+ "family": "Schoar",
+ "given": "Antoinette"
+ },
+ {
+ "family": "Severino",
+ "given": "Felipe"
+ }
+ ],
+ "container-title": "The Review of Financial Studies",
+ "container-title-short": "Rev Financ Stud",
+ "id": "6273435/3SMCKLDX",
+ "issue": "7",
+ "issued": {
+ "day": 1,
+ "month": 7,
+ "year": 2016
+ },
+ "journalAbbreviation": "Rev Financ Stud",
+ "language": "en",
+ "page": "1635-1670",
+ "page-first": "1635",
+ "shortTitle": "Loan Originations and Defaults in the Mortgage Crisis",
+ "title": "Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class",
+ "title-short": "Loan Originations and Defaults in the Mortgage Crisis",
+ "type": "article-journal",
+ "volume": "29"
+ },
+ "6273435/4LMAJ3FI": {
+ "author": [
+ {
+ "family": "Krivenko",
+ "given": "Pavel"
+ }
+ ],
+ "id": "6273435/4LMAJ3FI",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Unemployment and the US Housing Market during the Great Recession",
+ "type": "report"
+ },
+ "6273435/5DTVAPZ9": {
+ "DOI": "10.1111/jofi.12586",
+ "URL": "https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12586",
+ "abstract": "We present a model of credit cycles arising from diagnostic expectations—a belief formation mechanism based on Kahneman and Tversky's representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bordalo",
+ "given": "Pedro"
+ },
+ {
+ "family": "Gennaioli",
+ "given": "Nicola"
+ },
+ {
+ "family": "Shleifer",
+ "given": "Andrei"
+ }
+ ],
+ "container-title": "The Journal of Finance",
+ "id": "6273435/5DTVAPZ9",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 2,
+ "year": 2018
+ },
+ "language": "en",
+ "page": "199-227",
+ "page-first": "199",
+ "title": "Diagnostic Expectations and Credit Cycles",
+ "type": "article-journal",
+ "volume": "73"
+ },
+ "6273435/5EW3ZYSE": {
+ "URL": "https://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html",
+ "abstract": "Paul Krugman Op-Ed column on signs that United States housing bubble has started to deflate (M)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Krugman",
+ "given": "Paul"
+ }
+ ],
+ "container-title": "The New York Times",
+ "id": "6273435/5EW3ZYSE",
+ "issued": {
+ "day": 8,
+ "month": 8,
+ "year": 2005
+ },
+ "language": "en-US",
+ "section": "Opinion",
+ "title": "That Hissing Sound",
+ "type": "article-newspaper"
+ },
+ "6273435/5LQEJQJH": {
+ "DOI": "10.1093/qje/qjq004",
+ "URL": "https://academic.oup.com/qje/article/126/1/373/1901343",
+ "abstract": "Abstract. We investigate whether individual experiences of macroeconomic shocks affect financial risk taking, as often suggested for the generation that experi",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Malmendier",
+ "given": "Ulrike"
+ },
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ }
+ ],
+ "container-title": "The Quarterly Journal of Economics",
+ "container-title-short": "Q J Econ",
+ "id": "6273435/5LQEJQJH",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 2,
+ "year": 2011
+ },
+ "journalAbbreviation": "Q J Econ",
+ "language": "en",
+ "page": "373-416",
+ "page-first": "373",
+ "shortTitle": "Depression Babies",
+ "title": "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*",
+ "title-short": "Depression Babies",
+ "type": "article-journal",
+ "volume": "126"
+ },
+ "6273435/62FERJKI": {
+ "URL": "https://papers.ssrn.com/abstract=3069621",
+ "abstract": "Shared Appreciation Mortgages (SAMs) feature mortgage payments that adjust with house prices. These mortgage contracts are designed to stave off home owner default by providing payment relief in the wake of a large house price shock. SAMs have been hailed as an innovative solution that could prevent the next foreclosure crisis, act as a work-out tool during a crisis, and alleviate fiscal pressure during a downturn. They have inspired Fintech companies to offer home equity contracts. However, the home owner's gains are the mortgage lender's losses. A general equilibrium model with financial intermediaries who channel savings from saver households to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk-sharing. The two types of indexation have opposite implications for wealth inequality.",
+ "author": [
+ {
+ "family": "Greenwald",
+ "given": "Daniel"
+ },
+ {
+ "family": "Landvoigt",
+ "given": "Tim"
+ },
+ {
+ "family": "Van Nieuwerburgh",
+ "given": "Stijn"
+ }
+ ],
+ "genre": "MIT Sloan Research Paper",
+ "id": "6273435/62FERJKI",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "number": "5261-17",
+ "publisher": "MIT",
+ "title": "Financial Fragility with SAM?",
+ "type": "report"
+ },
+ "6273435/6ASZQUFK": {
+ "author": [
+ {
+ "family": "Kahneman",
+ "given": "Daniel"
+ }
+ ],
+ "event-place": "New York",
+ "id": "6273435/6ASZQUFK",
+ "issued": {
+ "year": 2011
+ },
+ "publisher": "Farrar, Straus and Giroux",
+ "publisher-place": "New York",
+ "title": "Thinking, Fast and Slow",
+ "type": "book"
+ },
+ "6273435/6HQGCZHA": {
+ "DOI": "10.1093/qje/qjx017",
+ "URL": "https://academic.oup.com/qje/article/132/4/1755/3854928",
+ "abstract": "Abstract. An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 coun",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Mian",
+ "given": "Atif"
+ },
+ {
+ "family": "Sufi",
+ "given": "Amir"
+ },
+ {
+ "family": "Verner",
+ "given": "Emil"
+ }
+ ],
+ "container-title": "The Quarterly Journal of Economics",
+ "container-title-short": "Q J Econ",
+ "id": "6273435/6HQGCZHA",
+ "issue": "4",
+ "issued": {
+ "day": 1,
+ "month": 11,
+ "year": 2017
+ },
+ "journalAbbreviation": "Q J Econ",
+ "language": "en",
+ "page": "1755-1817",
+ "page-first": "1755",
+ "title": "Household Debt and Business Cycles Worldwide",
+ "type": "article-journal",
+ "volume": "132"
+ },
+ "6273435/8IVI23TT": {
+ "author": [
+ {
+ "family": "Schlafmann",
+ "given": "Kathrin"
+ }
+ ],
+ "genre": "CEPR Discussion Paper",
+ "id": "6273435/8IVI23TT",
+ "issued": {
+ "year": 2016
+ },
+ "number": "11589",
+ "title": "Housing, Mortgages, and Self Control",
+ "type": "report"
+ },
+ "6273435/98I3UQNW": {
+ "author": [
+ {
+ "family": "Minsky",
+ "given": "Hyman P."
+ }
+ ],
+ "id": "6273435/98I3UQNW",
+ "issued": {
+ "year": 1986
+ },
+ "title": "Stabilizing an Unstable Economy",
+ "type": "book"
+ },
+ "6273435/9ERTKWRC": {
+ "author": [
+ {
+ "family": "Garcia",
+ "given": "Daniel"
+ }
+ ],
+ "id": "6273435/9ERTKWRC",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Employment in the Great Recession: How Important were Household Credit Supply Shocks?",
+ "type": "report"
+ },
+ "6273435/9GRH68SP": {
+ "author": [
+ {
+ "family": "Bartscher",
+ "given": "Alina"
+ },
+ {
+ "family": "Schularick",
+ "given": "Moritz"
+ },
+ {
+ "family": "Steins",
+ "given": "Ulrike I."
+ }
+ ],
+ "id": "6273435/9GRH68SP",
+ "issued": {
+ "year": 2017
+ },
+ "title": "The Great American Debt Boom, 1948-2013",
+ "type": "report"
+ },
+ "6273435/A2G7SCE7": {
+ "URL": "https://ideas.repec.org/a/fip/fedkpr/y2007p149-233.html",
+ "abstract": "Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession. Since World War II we have had eight recessions preceded by substantial problems in housing and consumer durables. Housing did not give an early warning of the Department of Defense Downturn after the Korean Armistice in 1953 or the Internet Comeuppance in 2001, nor should it have. By virtue of its prominence in our recessions, it makes sense for housing to play a prominent role in the conduct of monetary policy. A modified Taylor Rule would depend on a long-term measure of inflation having little to do with the phase in the cycle, and, in place of Taylor's output gap, housing starts and the change in housing starts, which together form the best forward-looking indicator of the cycle of which I am aware. This would create pre-emptive anti-inflation policy in the middle of the expansions when housing is not so sensitive to interest rates, making it less likely that anti-inflation policies would be needed near the ends of expansions when housing is very interest rate sensitive, thus making our recessions less frequent and/or less severe.
(This abstract was borrowed from another version of this item.)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Leamer",
+ "given": "Edward E."
+ }
+ ],
+ "container-title": "Proceedings - Economic Policy Symposium - Jackson Hole",
+ "id": "6273435/A2G7SCE7",
+ "issued": {
+ "year": 2007
+ },
+ "language": "en",
+ "page": "149-233",
+ "page-first": "149",
+ "title": "Housing is the business cycle",
+ "type": "article-journal"
+ },
+ "6273435/AR5CX6Z6": {
+ "author": [
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ },
+ {
+ "family": "Xu",
+ "given": "Zhengyang"
+ }
+ ],
+ "id": "undefined",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "page": "56",
+ "page-first": "56",
+ "title": "Asset Pricing with Fading Memory",
+ "type": "article-journal"
+ },
+ "6273435/AV7DSQTR": {
+ "URL": "https://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-10",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Chudley",
+ "given": "Jody"
+ }
+ ],
+ "container-title": "Business Insider",
+ "id": "6273435/AV7DSQTR",
+ "title": "JFK's father used a simple trick to spot market bubbles — and you can too",
+ "type": "webpage"
+ },
+ "6273435/BL42NIKV": {
+ "author": [
+ {
+ "family": "Finocchiaro",
+ "given": "Daria"
+ },
+ {
+ "family": "Jonsson",
+ "given": "Magnus"
+ },
+ {
+ "family": "Nilsson",
+ "given": "Christian"
+ },
+ {
+ "family": "Strid",
+ "given": "Ingvar"
+ }
+ ],
+ "container-title": "Sveriges Riksbank Economic Review",
+ "id": "6273435/BL42NIKV",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Macroeconomic effects of reducing household debt",
+ "type": "article-journal"
+ },
+ "6273435/BLFT9BEG": {
+ "author": [
+ {
+ "family": "Mackay",
+ "given": "Charles"
+ }
+ ],
+ "id": "6273435/BLFT9BEG",
+ "issued": {
+ "year": 1841
+ },
+ "language": "English",
+ "publisher": "Richard Bentley",
+ "shortTitle": "Extraordinary Popular Delusions",
+ "title": "Extraordinary Popular Delusions and the Madness of Crowds",
+ "title-short": "Extraordinary Popular Delusions",
+ "type": "book"
+ },
+ "6273435/D7FS5MRE": {
+ "URL": "http://www.nber.org/papers/w22903",
+ "abstract": "This paper studies temporary policy incentives designed to address capital overhang by inducing asset demand from buyers in the private market. Using variation across local geographies in ex ante program exposure and a difference-in-differences design, we find that the First-Time Homebuyer Credit induced a cumulative increase in home sales of 397 to 546 thousand, or 7.8 to 10.7 percent, nationally. We find little evidence of a sharp reversal of the policy response; instead, demand comes from several years in the future. The program likely sped the process of reallocating homes from distressed sellers to high value buyers, which stabilized house prices. The response is concentrated in the existing home sales market, implying the stimulative effects of the program were less important than its role in accelerating reallocation.",
+ "accessed": {
+ "day": 9,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Berger",
+ "given": "David"
+ },
+ {
+ "family": "Turner",
+ "given": "Nicholas"
+ },
+ {
+ "family": "Zwick",
+ "given": "Eric"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/D7FS5MRE",
+ "issued": {
+ "month": 12,
+ "year": 2016
+ },
+ "note": "DOI: 10.3386/w22903",
+ "number": "22903",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Stimulating Housing Markets",
+ "type": "report"
+ },
+ "6273435/DCC92Q2Z": {
+ "URL": "http://www.economist.com/special-report/2003/05/29/house-of-cards",
+ "abstract": "In many countries the stockmarket bubble has been replaced by a property-price bubble. Sooner or later it will burst, says Pam Woodall, our economics editor",
+ "accessed": {
+ "day": 6,
+ "month": 9,
+ "year": 2018
+ },
+ "container-title": "The Economist",
+ "id": "6273435/DCC92Q2Z",
+ "issued": {
+ "day": 29,
+ "month": 5,
+ "year": 2003
+ },
+ "title": "House of cards",
+ "type": "article-magazine"
+ },
+ "6273435/EB4C5G4S": {
+ "author": [
+ {
+ "family": "Kindleberger",
+ "given": "Charles P."
+ }
+ ],
+ "id": "6273435/EB4C5G4S",
+ "issued": {
+ "year": 1978
+ },
+ "language": "en",
+ "publisher": "Palgrave Macmillan",
+ "title": "Manias, Panics, and Crashes: A History of Financial Crises",
+ "type": "book"
+ },
+ "6273435/EGT99GAZ": {
+ "author": [
+ {
+ "family": "Walentin",
+ "given": "Karl"
+ },
+ {
+ "family": "Hull",
+ "given": "Isaiah"
+ },
+ {
+ "family": "Olovsson",
+ "given": "Conny"
+ }
+ ],
+ "genre": "Sveriges Riksbank Working Paper Series",
+ "id": "6273435/EGT99GAZ",
+ "issued": {
+ "year": 2018
+ },
+ "number": "349",
+ "title": "The Granular Origins of Aggregate House Price Volatility",
+ "type": "report"
+ },
+ "6273435/EJUQGA4W": {
+ "author": [
+ {
+ "family": "Albanesi",
+ "given": "Stefania"
+ }
+ ],
+ "id": "6273435/EJUQGA4W",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Real Estate Investors and the 2007-2009 Mortgage Crisis",
+ "type": "report"
+ },
+ "6273435/EXL57QX8": {
+ "author": [
+ {
+ "family": "Khan",
+ "given": "Shujaat"
+ }
+ ],
+ "id": "6273435/EXL57QX8",
+ "issued": {
+ "year": 2018
+ },
+ "title": "The Anatomy of Macroprudential Policies in a Heterogeneous Agent Model of Housing Default",
+ "type": "report"
+ },
+ "6273435/HAEFCS8B": {
+ "DOI": "10.1257/aer.91.2.1",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.91.2.1",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Hall",
+ "given": "Robert E."
+ }
+ ],
+ "container-title": "American Economic Review",
+ "id": "6273435/HAEFCS8B",
+ "issue": "2",
+ "issued": {
+ "month": 5,
+ "year": 2001
+ },
+ "language": "en",
+ "page": "1-11",
+ "page-first": "1",
+ "title": "Struggling to Understand the Stock Market",
+ "type": "article-journal",
+ "volume": "91"
+ },
+ "6273435/HRF5MEAR": {
+ "DOI": "10.1086/680584",
+ "URL": "https://www.journals.uchicago.edu/doi/10.1086/680584",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Hall",
+ "given": "Robert E."
+ }
+ ],
+ "container-title": "NBER Macroeconomics Annual",
+ "container-title-short": "NBER Macroeconomics Annual",
+ "id": "6273435/HRF5MEAR",
+ "issue": "1",
+ "issued": {
+ "day": 1,
+ "month": 1,
+ "year": 2015
+ },
+ "journalAbbreviation": "NBER Macroeconomics Annual",
+ "page": "71-128",
+ "page-first": "71",
+ "title": "Quantifying the Lasting Harm to the US Economy from the Financial Crisis",
+ "type": "article-journal",
+ "volume": "29"
+ },
+ "6273435/HZE378I7": {
+ "URL": "https://www.brookings.edu/wp-content/uploads/2003/06/2003b_bpea_caseshiller.pdf",
+ "abstract": "This paper looks for evidence of a bubble in U.S. housing prices. It analyzes quarterly state-level data over 1985-2002, focusing on the relationship between home prices and selected fundamental variables. Income per capita alone largely explains price changes in all but eight states; in the latter, large price movements are observed unrelated to the fundamentals. Results from a new survey of recent homebuyers in the Los Angeles, San Francisco, Boston, and Milwaukee metropolitan areas are reported. This survey replicates an almost identical 1988 survey and finds, as before, that buyers in most of these markets perceive little risk in their housing investment, have unrealistic expectations about future price increases, and hold economically implausible beliefs about home price behavior—findings consistent with a bubble. Prices in such markets could stall or decline, but only if such declines are simultaneous or spread to other markets are significant effects on the national economy likely.",
+ "author": [
+ {
+ "family": "Case",
+ "given": "Karl E."
+ },
+ {
+ "family": "Shiller",
+ "given": "Robert J."
+ }
+ ],
+ "collection-title": "Brookings Papers on Economic Activity",
+ "id": "6273435/HZE378I7",
+ "issued": {
+ "year": 2003
+ },
+ "publisher": "Brookings Institute",
+ "title": "Is There a Bubble in the Housing Market?",
+ "type": "report"
+ },
+ "6273435/JMNWJTKW": {
+ "DOI": "10.1016/j.iref.2015.02.002",
+ "URL": "http://www.sciencedirect.com/science/article/pii/S1059056015000246",
+ "abstract": "There has been, in recent years, a renewed interest in and a growing recognition of the role played by uncertainty shocks in driving fluctuations in the economy and in asset markets. We create new text-based indicators of both general economic and policy specific uncertainty from New York Times and use them first, to chart changes in the level of uncertainty in the US for the period 1985–2007, second, to determine the role of policy in these swings, and, third to assess their impact on the economy, equity markets, and business cycles. Overall, our results indicate that uncertainty shocks – both general and policy related – depress the level of economic activity, significantly increase stock market volatility, and decrease market returns.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Alexopoulos",
+ "given": "Michelle"
+ },
+ {
+ "family": "Cohen",
+ "given": "Jon"
+ }
+ ],
+ "container-title": "International Review of Economics & Finance",
+ "container-title-short": "International Review of Economics & Finance",
+ "id": "6273435/JMNWJTKW",
+ "issued": {
+ "day": 1,
+ "month": 11,
+ "year": 2015
+ },
+ "journalAbbreviation": "International Review of Economics & Finance",
+ "page": "8-28",
+ "page-first": "8",
+ "shortTitle": "The power of print",
+ "title": "The power of print: Uncertainty shocks, markets, and the economy",
+ "title-short": "The power of print",
+ "type": "article-journal",
+ "volume": "40"
+ },
+ "6273435/JYAC2RG2": {
+ "URL": "https://ideas.repec.org/a/fip/fedker/y2007iqivp115-145nv.92no.4.html",
+ "abstract": "Residential foreclosures in the United States have been rising very rapidly since 2006. In the second quarter of 2007, the share of outstanding mortgages in some stage of foreclosure stood at 1.4 percent, near historic highs and up from less than 1 percent a year earlier. The number of mortgages entering the foreclosure process reached an all-time high in mid-2007, suggesting that the foreclosure surge is likely to get worse before it gets better. ; The foreclosure surge was created by a perfect storm of events. First, in recent years the share of subprime mortgage originations increased substantially. Second, foreclosure rates for adjustable-rate mortgages (ARMs) have increased considerably, especially for subprime ARMs. This increase is largely due to rising short-term interest rates and to payment resets for many nontraditional mortgages. Finally, high loan-to-value originations in recent years, coupled with stagnant or falling home prices, have left many people with insufficient equity to sell or refinance their homes. ; Edmiston and Zalneraitis provide a detailed dissection of the current foreclosure surge. They conclude with a discussion of why the foreclosure situation is likely to get worse over the next one to two years and why it is likely to improve afterward.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Edmiston",
+ "given": "Kelly D."
+ },
+ {
+ "family": "Zalneraitis",
+ "given": "Roger"
+ }
+ ],
+ "container-title": "Economic Review",
+ "id": "6273435/JYAC2RG2",
+ "issue": "Q IV",
+ "issued": {
+ "year": 2007
+ },
+ "language": "en",
+ "page": "115-145",
+ "page-first": "115",
+ "shortTitle": "Rising foreclosures in the United States",
+ "title": "Rising foreclosures in the United States: a perfect storm",
+ "title-short": "Rising foreclosures in the United States",
+ "type": "article-journal"
+ },
+ "6273435/LGD94T7L": {
+ "URL": "https://www.federalreserve.gov/boarddocs/speeches/2004/20040521/default.htm",
+ "author": [
+ {
+ "family": "Gramlich",
+ "given": "Edward M."
+ }
+ ],
+ "id": "6273435/LGD94T7L",
+ "issued": {
+ "year": 2004
+ },
+ "note": "Remarks by Governor Edward M. Gramlich at the Financial Services Roundtable Annual Housing Policy Meeting, Chicago, Illinois.",
+ "title": "Subprime Mortgage Lending: Benefits, Costs, and Challenges",
+ "type": "webpage"
+ },
+ "6273435/MRW6WNVP": {
+ "author": [
+ {
+ "family": "Blinder",
+ "given": "Alan S."
+ }
+ ],
+ "id": "6273435/MRW6WNVP",
+ "issued": {
+ "year": 2013
+ },
+ "publisher": "Penguin Press",
+ "title": "After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead",
+ "type": "book"
+ },
+ "6273435/N2QBSRRP": {
+ "URL": "https://faculty.missouri.edu/~hedlunda/research/housing_boombust_main.pdf",
+ "author": [
+ {
+ "family": "Garriga",
+ "given": "Carlos"
+ },
+ {
+ "family": "Hedlund",
+ "given": "Aaron"
+ }
+ ],
+ "id": "6273435/N2QBSRRP",
+ "issued": {
+ "year": 2018
+ },
+ "title": "Housing Finance, Boom-Bust Episodes, and\nMacroeconomic Fragility",
+ "type": "report"
+ },
+ "6273435/PUJGD86E": {
+ "URL": "http://www.nber.org/chapters/c13907",
+ "accessed": {
+ "day": 9,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Manski",
+ "given": "Charles F."
+ }
+ ],
+ "container-title": "NBER Macroeconomics Annual 2017, volume 32",
+ "id": "6273435/PUJGD86E",
+ "issued": {
+ "day": 10,
+ "month": 4,
+ "year": 2017
+ },
+ "page": "411-471",
+ "page-first": "411",
+ "shortTitle": "Survey Measurement of Probabilistic Macroeconomic Expectations",
+ "title": "Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise",
+ "title-short": "Survey Measurement of Probabilistic Macroeconomic Expectations",
+ "type": "article-journal"
+ },
+ "6273435/Q7UH3SHN": {
+ "DOI": "10.1257/089533005775196769",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/089533005775196769",
+ "abstract": "How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices—both whether there is a bubble and what underlying factors support housing demand—in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market. For a number of reasons, conventional metrics for assessing pricing in the housing market such as price-to-rent ratios or price-to-income ratios generally fail to reflect accurately the state of housing costs. To the eyes of analysts employing such measures, housing markets can appear \"exuberant\" even when houses are in fact reasonably priced. We construct a measure for evaluating the cost of home owning that is standard for economists—the imputed annual rental cost of owning a home, a variant of the user cost of housing—and apply it to 25 years of history across a wide variety of housing markets. This calculation enables us to estimate the time pattern of housing costs within a market. As of the end of 2004, our analysis reveals little evidence of a housing bubble.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Himmelberg",
+ "given": "Charles"
+ },
+ {
+ "family": "Mayer",
+ "given": "Christopher"
+ },
+ {
+ "family": "Sinai",
+ "given": "Todd"
+ }
+ ],
+ "container-title": "Journal of Economic Perspectives",
+ "id": "6273435/Q7UH3SHN",
+ "issue": "4",
+ "issued": {
+ "month": 12,
+ "year": 2005
+ },
+ "language": "en",
+ "page": "67-92",
+ "page-first": "67",
+ "shortTitle": "Assessing High House Prices",
+ "title": "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions",
+ "title-short": "Assessing High House Prices",
+ "type": "article-journal",
+ "volume": "19"
+ },
+ "6273435/TJ86B67S": {
+ "author": [
+ {
+ "family": "Mian",
+ "given": "Atif"
+ },
+ {
+ "family": "Sufi",
+ "given": "Amir"
+ }
+ ],
+ "container-title": "Journal of Economic Perspectives",
+ "id": "6273435/TJ86B67S",
+ "issue": "3",
+ "issued": {
+ "year": 2018
+ },
+ "page": "1-30",
+ "page-first": "1",
+ "title": "Finance and Business Cycles: The Credit-Driven Household Demand Channel",
+ "type": "article-journal",
+ "volume": "32"
+ },
+ "6273435/UWMQ3ND7": {
+ "URL": "http://www.nber.org/papers/w23281",
+ "abstract": "This paper extends the benchmark New-Keynesian model with a representative agent and rational expectations by introducing two key frictions: (1) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally-binding borrowing constraints; and (2) bounded rationality in the form of level-k thinking. Compared to the benchmark model, we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy, which is much more pronounced at long horizons, and offers a potential rationalization of the “forward guidance puzzle”. Each of these frictions, in isolation, would lead to no or much smaller departures from the benchmark model. We conclude that the interaction of bounded rationality and market frictions improves the ability of the model to account for the effects of monetary policy.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Farhi",
+ "given": "Emmanuel"
+ },
+ {
+ "family": "Werning",
+ "given": "Iván"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/UWMQ3ND7",
+ "issued": {
+ "month": 3,
+ "year": 2017
+ },
+ "note": "DOI: 10.3386/w23281",
+ "number": "23281",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Monetary Policy, Bounded Rationality, and Incomplete Markets",
+ "type": "report"
+ },
+ "6273435/V8M7KIK5": {
+ "URL": "https://www.brookings.edu/wp-content/uploads/2016/03/ByrneEtAl_ProductivityMeasurement_ConferenceDraft.pdf",
+ "author": [
+ {
+ "family": "Byrne",
+ "given": "David M."
+ },
+ {
+ "family": "Fernald",
+ "given": "John G."
+ },
+ {
+ "family": "Reinsdorf",
+ "given": "Marshall B."
+ }
+ ],
+ "genre": "Brookings Papers on Economic Activity",
+ "id": "6273435/V8M7KIK5",
+ "issued": {
+ "year": 2016
+ },
+ "publisher": "Brookings Institute",
+ "title": "Does the United States have a productivity slowdown or a measurement problem?",
+ "type": "report"
+ },
+ "6273435/VDK9EZWA": {
+ "URL": "https://ideas.repec.org/p/fip/fedgsq/77.html",
+ "abstract": "a speech at the Sandridge Lecture, Virginia Association of Economics, Richmond, Virginia, March 10, 2005 and the Homer Jones Lecture, St. Louis, Missouri, on April 14, 2005",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bernanke",
+ "given": "Ben S."
+ }
+ ],
+ "collection-title": "Speech",
+ "id": "6273435/VDK9EZWA",
+ "issued": {
+ "year": 2005
+ },
+ "language": "en",
+ "number": "77",
+ "publisher": "Board of Governors of the Federal Reserve System (U.S.)",
+ "title": "The global saving glut and the U.S. current account deficit",
+ "type": "report"
+ },
+ "6273435/WTWTWFWP": {
+ "DOI": "10.1257/aer.20110683",
+ "URL": "https://www.aeaweb.org/articles?id=10.1257/aer.20110683",
+ "abstract": "The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession. (JEL D14, D31, D33, E32, E44, G01, N22)",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Kumhof",
+ "given": "Michael"
+ },
+ {
+ "family": "Rancière",
+ "given": "Romain"
+ },
+ {
+ "family": "Winant",
+ "given": "Pablo"
+ }
+ ],
+ "container-title": "American Economic Review",
+ "id": "6273435/WTWTWFWP",
+ "issue": "3",
+ "issued": {
+ "month": 3,
+ "year": 2015
+ },
+ "language": "en",
+ "page": "1217-1245",
+ "page-first": "1217",
+ "title": "Inequality, Leverage, and Crises",
+ "type": "article-journal",
+ "volume": "105"
+ },
+ "6273435/YS4K82GI": {
+ "URL": "https://ideas.repec.org/p/red/sed018/1017.html",
+ "abstract": "I quantify the extent to which deterioration of bank balance sheets explains the large contraction in housing prices and consumption experienced by the U.S. during the last recession. I introduce a Banking Sector with balance sheet frictions into a model of long-term collateralized debt with risk of default. Credit supply is endogenously determined and depends on the capitalization of the entire banking sector. Mortgage spreads and endogenous down payments increase in periods when banks are poorly capitalized. I simulate an increase in the stock of housing and a negative income shock to match the decline in house prices between 2006-2009. The model generates changes in consumption, foreclosures and refinance rates similar to those observed in the U.S. between 2006 and 2009. Changes in financial intermediaries’ cost of funding explain, respectively, 38, 22 and 29 percent of the changes in housing prices, foreclosures and consumption generated by the model. These results show that the endogenous response of banks’ credit supply can partially explain how changes in housing prices affect consumption decisions. I use this framework to analyze the impact of debt forgiveness and banks’ recapitalization to mitigate the drop in housing prices and consumption. I also present empirical evidence that balance sheet mechanism implied by the model was operational during this period. In other words, I show that during the great recession, changes in the real estate prices impacted the balance sheet of the banks that reacted by contracting their mortgage credit supply.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Paixao",
+ "given": "Nuno"
+ }
+ ],
+ "collection-title": "2018 Meeting Papers",
+ "id": "6273435/YS4K82GI",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "number": "1017",
+ "publisher": "Society for Economic Dynamics",
+ "shortTitle": "Housing Prices and Consumer Spending",
+ "title": "Housing Prices and Consumer Spending: The Bank Balance Sheet Channel",
+ "title-short": "Housing Prices and Consumer Spending",
+ "type": "report"
+ },
+ "6273435/ZNBZENA9": {
+ "URL": "http://www.nber.org/papers/w23863",
+ "abstract": "We revisit La Porta’s (1996) finding that returns on stocks with the most optimistic analyst long term earnings growth forecasts are substantially lower than those for stocks with the most pessimistic forecasts. We document that this finding still holds, and present several further facts about the joint dynamics of fundamentals, expectations, and returns for these portfolios. We explain these facts using a new model of belief formation based on a portable formalization of the representativeness heuristic. In this model, analysts forecast future fundamentals from the history of earnings growth, but they over-react to news by exaggerating the probability of states that have become objectively more likely. Intuitively, fast earnings growth predicts future Googles but not as many as analysts believe. We test predictions that distinguish this mechanism from both Bayesian learning and adaptive expectations, and find supportive evidence. A calibration of the model offers a satisfactory account of the key patterns in fundamentals, expectations, and returns.",
+ "accessed": {
+ "day": 5,
+ "month": 9,
+ "year": 2018
+ },
+ "author": [
+ {
+ "family": "Bordalo",
+ "given": "Pedro"
+ },
+ {
+ "family": "Gennaioli",
+ "given": "Nicola"
+ },
+ {
+ "family": "Porta",
+ "given": "Rafael La"
+ },
+ {
+ "family": "Shleifer",
+ "given": "Andrei"
+ }
+ ],
+ "genre": "Working Paper",
+ "id": "6273435/ZNBZENA9",
+ "issued": {
+ "month": 9,
+ "year": 2017
+ },
+ "note": "DOI: 10.3386/w23863",
+ "number": "23863",
+ "publisher": "National Bureau of Economic Research",
+ "title": "Diagnostic Expectations and Stock Returns",
+ "type": "report"
+ },
+ "undefined": {
+ "author": [
+ {
+ "family": "Nagel",
+ "given": "Stefan"
+ },
+ {
+ "family": "Xu",
+ "given": "Zhengyang"
+ }
+ ],
+ "id": "undefined",
+ "issued": {
+ "year": 2018
+ },
+ "language": "en",
+ "page": "56",
+ "page-first": "56",
+ "title": "Asset Pricing with Fading Memory",
+ "type": "article-journal"
+ }
+ }
+ },
+ "kernelspec": {
+ "display_name": "Python 3",
+ "language": "python",
+ "name": "python3"
+ },
+ "language_info": {
+ "codemirror_mode": {
+ "name": "ipython",
+ "version": 3
+ },
+ "file_extension": ".py",
+ "mimetype": "text/x-python",
+ "name": "python",
+ "nbconvert_exporter": "python",
+ "pygments_lexer": "ipython3",
+ "version": "3.8.5"
+ }
+ },
+ "nbformat": 4,
+ "nbformat_minor": 2
+}
\ No newline at end of file
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/index.md b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/index.md
new file mode 100644
index 00000000..2dae2b71
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/index.md
@@ -0,0 +1,15 @@
+---
+title: "The Optimum Quantity of Debt — Ballpark Entry"
+---
+
+```{include} OptimumDebt_intro.ipynb
+```
+
+```{include} OptimumDebt_prior-literature.ipynb
+```
+
+```{include} OptimumDebt_summary.ipynb
+```
+
+```{include} OptimumDebt_subsequent-literature.ipynb
+```
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/myst.yml b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/myst.yml
new file mode 100644
index 00000000..98914f4d
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/myst.yml
@@ -0,0 +1,16 @@
+version: 1
+
+project:
+ title: "The Optimum Quantity of Debt — Ballpark Entry"
+ bibliography:
+ - self.bib
+ - references.bib
+ - subsequent-literature.bib
+ toc:
+ - file: OptimumDebt_intro.ipynb
+ - file: OptimumDebt_prior-literature.ipynb
+ - file: OptimumDebt_summary.ipynb
+ - file: OptimumDebt_subsequent-literature.ipynb
+
+site:
+ title: "The Optimum Quantity of Debt — Ballpark Entry"
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/references.bib b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/references.bib
new file mode 100644
index 00000000..4b46b827
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/references.bib
@@ -0,0 +1,461 @@
+@ARTICLE{Woodford1990-ze,
+ title = "Public debt as private liquidity",
+ author = "Woodford, Michael",
+ journal = "American Economic Review",
+ publisher = "Columbia University",
+ volume = 80,
+ pages = "382--388",
+ abstract = "From page 382-- ``I [the author] wish to argue that the analysis
+ provided by the neoclassical model may not be an adequate guide
+ to policy, even if certain of its predictions are correct.
+ Instead, I [the author] direct attention to an alternative
+ explanation of the effects of changes in the level of public
+ debt, which leads to very different conclusions about the welfare
+ consequences of such policies. According to this view, 'Ricardian
+ equivalence' fails because of imperfect financial intermediation.
+ Some economic units are liquidity constrained, which is to say
+ that they are unable to borrow against their future income at a
+ rate of interest as low as that at which the government borrows.
+ Increased government borrowing can benefit such parties, insofar
+ as they effectively receive a highly liquid asset, government
+ debts, in exchange for giving the government an increased claim
+ on their future income, their own claim to which represented a
+ highly illiquid asset. A higher public debt, insofar as it
+ implies a higher proportion of liquid assets in private sector
+ wealth, increases the flexibility of the private sector in
+ responding to variation in both income and spending
+ opportunities, and so can increase economic efficiency.''",
+ month = jun,
+ year = 1990
+}
+
+@ARTICLE{Mehrling1995-hm,
+ title = "A note on the optimum quantity of money",
+ author = "Mehrling, Perry",
+ journal = "J. Math. Econ.",
+ publisher = "Elsevier BV",
+ volume = 24,
+ number = 3,
+ pages = "249--258",
+ abstract = "In a model where agents use money to offset uninsurable
+ idiosyncratic income fluctuation, Bewley (1983) has shown that it
+ may be impossible to satiate the demand for money as recommended
+ by the literature on the optimum quantity of money (Friedman,
+ 1969). This note shows, by means of an example, that even when it
+ is possible to implement the traditional optimum quantity
+ proposal, it may not be welfare-maximizing to do so on account of
+ a negative distribution effect.",
+ year = 1995,
+ language = "en"
+}
+
+@ARTICLE{Laitner1992-gn,
+ title = "Random earnings differences, lifetime liquidity constraints, and
+ altruistic intergenerational transfers",
+ author = "Laitner, John",
+ journal = "J. Econ. Theory",
+ publisher = "Elsevier BV",
+ volume = 58,
+ number = 2,
+ pages = "135--170",
+ abstract = "This paper develops a model of private savings behavior in which
+ households care about their descendants, cannot have negative net
+ worth, and have lifetime earnings depending on random draws from
+ an exogenous distribution of abilities. The elements interact:
+ very lucky parents are likely to leave large estates; constrained
+ children are unusually likely to receive intergenerational
+ transfers. The paper proves the existence of a stationary
+ cross-sectional distribution of wealth, endogenously determines
+ where liquidity constraints will bind, and shows that the
+ long-term interest rate must be such that Ricardian neutrality
+ fails. Its last section generates several illustrative numerical
+ simulations.",
+ month = dec,
+ year = 1992,
+ language = "en"
+}
+
+@MISC{Kehoe1992-wz,
+ title = "The optimum quantity of money revisited",
+ author = "Kehoe, Timothy J and Levine, David K and Woodford, Michael",
+ editor = "Dasgupta, P and Gale, D and Hart, O and Maskin, E",
+ booktitle = "The economic analysis of markets and games: Essays in honor of
+ Frank Hahn",
+ publisher = "Columbia University",
+ address = "Cambridge, MA",
+ pages = "501--526",
+ abstract = "From page 501 -- 'The accepted wisdom on the optimum quantity of
+ money was first expressed by Friedman (1953, 1969): Real money
+ balances represent a service to the economy provided by the
+ government at no cost. The government should maximize the
+ quantity of real balances it provides, since it is costless to do
+ so. It can do this either by means of a deflationary monetary
+ policy or by paying interest on nominal balances. Either policy
+ reduces the cost of holding idle balances and increases the value
+ of the money stock. Hahn (1971, 1973) has objected to Friedman's
+ analysis because it is not grounded in a fully specified model of
+ an economy with money: ... In this paper we study efficiency of
+ monetary policies in an economy in which money plays an essential
+ role.``",
+ month = jun,
+ year = 1992
+}
+
+@UNPUBLISHED{Jappelli1994-xc,
+ title = "The welfare effects of liquidity constraints",
+ author = "Jappelli, T and Pagano, M",
+ year = 1994
+}
+
+@ARTICLE{Hansen1992-dn,
+ title = "The role of unemployment insurance in an economy with liquidity
+ constraints and moral hazard",
+ author = "Hansen, Gary D and Imrohoroğlu, Ayşe",
+ journal = "J. Polit. Econ.",
+ publisher = "University of Chicago Press",
+ volume = 100,
+ number = 1,
+ pages = "118--142",
+ abstract = "The potential welfare benefits of unemployment insurance, along
+ with the optimal replacement ratio, are studied using a
+ quantitative dynamic general equilibrium model. To provide a role
+ for unemployment insurance, agents in the authors' economy face
+ exogenous idiosyncratic employment shocks and are unable to
+ borrow or insure themselves through private markets. In the
+ absence of moral hazard, replacement ratios as high as 0.65 are
+ optimal and the welfare benefits of unemployment insurance are
+ quite large. However, if there is moral hazard and the
+ replacement ratio is not set optimally, the economy can be much
+ worse-off than it would be without unemployment insurance.
+ Copyright 1992 by University of Chicago Press.",
+ month = feb,
+ year = 1992
+}
+
+@ARTICLE{Chamley1986-pw,
+ title = "Optimal taxation of capital income in general equilibrium with
+ infinite lives",
+ author = "Chamley, Christophe",
+ journal = "Econometrica",
+ publisher = "JSTOR",
+ volume = 54,
+ number = 3,
+ pages = 607,
+ abstract = "This paper analyzes the optimal tax on capital income in general
+ equilibrium models of the second best. Agents have infinite lives
+ and utility functions which are extensions from the Koopmans
+ form. The population is heterogeneous. The important property of
+ the models is the equality between the social and the private
+ discount rates in the long run. I find that the optimal tax rate
+ is zero in the long run. For a special case of additively
+ separable utility functions, I then determine the tax rates along
+ the dynamic path and conditions that are sufficient for the local
+ stability of the steady state.",
+ month = may,
+ year = 1986
+}
+
+@ARTICLE{Bewley1979-zu,
+ title = "The optimum quantity of money",
+ author = "Bewley, T",
+ editor = "Kareken, J H and Wallace, N",
+ publisher = "Federal Reserve Bank of Minneapolis",
+ address = "Minneapolis",
+ pages = "169--210",
+ abstract = "ideas, one may think of Friedman's optimum quantity of money as
+ optimal only in some asymptotic or approximate sense. One can
+ think of money as present but nearly irrelevant from",
+ year = 1979
+}
+
+@UNPUBLISHED{BewleyUnknown-ea,
+ title = "Interest bearing money and the equilibrium stock of capital",
+ author = "Bewley, T"
+}
+
+@ARTICLE{Aiyagari1994-ro,
+ title = "Macroeconomics With Frictions",
+ author = "Aiyagari, S Rao",
+ journal = "Q. Rev. - Fed. Reserve Bank Minneap.",
+ publisher = "Federal Reserve Bank of Minneapolis",
+ volume = 18,
+ number = 3,
+ pages = "24--32",
+ month = jun,
+ year = 1994
+}
+
+@ARTICLE{Varian1980-lb,
+ title = "Redistributive taxation as social insurance",
+ author = "Varian, Hal R",
+ journal = "J. Public Econ.",
+ publisher = "Elsevier BV",
+ volume = 14,
+ number = 1,
+ pages = "49--68",
+ abstract = "The modern literature on nonlinear optimal taxation treats
+ differences in income as being due to unobserved differences in
+ ability. A striking result of this assumption is that high income
+ agents should face a zero marginal tax rate. In this paper I
+ assume that differences in observed income are due to exogenous
+ differences in luck. Hence the optimal redistributive tax
+ involves trading off the benefits due to 'social insurance' with
+ the costs due to reduced incentives. I derive the optimal forms
+ for linear and nonlinear taxes, and compute some algebraic and
+ numeric examples. Typically high income individuals will face
+ quite high marginal tax rates.",
+ month = aug,
+ year = 1980,
+ language = "en"
+}
+
+@ARTICLE{McGrattan1996-yv,
+ title = "Solving the stochastic growth model with a finite element method",
+ author = "McGrattan, Ellen R",
+ journal = "J. Econ. Dyn. Control",
+ publisher = "Elsevier BV",
+ volume = 20,
+ number = "1-3",
+ pages = "19--42",
+ abstract = "Since it is the dominant paradigm of the business cycle and
+ growth literatures, the stochastic growth model has been used to
+ test the performance of alternative numerical methods. In this
+ paper I apply the finite element method to this model. I show
+ that the method is easy to apply and that, for examples such as
+ the stochastic growth model, it gives accurate solutions within a
+ second or two on a desktop computer. I also show how inequality
+ constraints can be handled by redefining the optimization problem
+ with penalty functions.",
+ month = jan,
+ year = 1996,
+ language = "en"
+}
+
+@ARTICLE{Lucas1990-se,
+ title = "Supply-side economics: An analytical review",
+ author = "Lucas, Jr, Robert E",
+ journal = "Oxf. Econ. Pap.",
+ publisher = "Oxford University Press (OUP)",
+ volume = 42,
+ number = 2,
+ pages = "293--316",
+ abstract = "In an electrocoating process acid binders which are present at
+ least partly in the form of their salts with basic compounds are
+ used and the basic compounds used for salt formation consist of
+ the extent of 0.1 to 50 percent of the neutralization equivalent
+ of the acid binder of at least one arylamine and/or alkynylamine
+ and/or quaternary ammonium hydroxide and/or phosphonium hydroxide
+ with at least one aromatic ligand, and other conventional
+ additives and non-basic corrosion inhibitors may be contained in
+ the aqueous solution or dispersion of the coating composition.
+ The process is suitable for the production of particularly
+ corrosion-resistant coatings on metal articles.",
+ month = apr,
+ year = 1990
+}
+
+@ARTICLE{Laitner1979-vy,
+ title = "Bequests, golden-age capital accumulation and government debt",
+ author = "Laitner, John P",
+ journal = "Economica",
+ publisher = "JSTOR",
+ volume = 46,
+ number = 184,
+ pages = 403,
+ abstract = "The purpose of this paper is to examine the golden ages of an
+ infinite time horizon economy in which individual families have
+ finite life-spans but are connected with other generations
+ through bequests. We construct a model of family bequest
+ behaviour based on utility maximization and combine it with a
+ simple, aggregative description of production. We then show that
+ the overall model always has at least one steady-state
+ equilibrium. Although we do not argue that bequest-motivated
+ saving must necessarily play a major role in total capital
+ accumulation, we do derive the following result: bequests will
+ become an overwhelmingly important source of capital in
+ situations in which the steady-state interest rate approaches a
+ level P 1 derived in our analysis. Thus, at minimum, bequest
+ behaviour has a safety value role, preventing a steady-state
+ interest rate too much above the golden rule level and, hence,
+ putting a lower bound on potential steady-state capital-to-labour
+ ratios. We also present a second, somewhat different, application
+ of our steady-state model: we show that the government can always
+ change the steady-state interest rate with a properly designed
+ shift between tax and debt financing of its spending. This result
+ conflicts with the argument that government debt is not a
+ component of private aggregate net worth since the discounted
+ value of future debt service should exactly counterbalance the
+ value now of any new government bonds issued. The organization of
+ this paper is as follows. The first section sets up our bequest
+ model for families. The second establishes the existence of at
+ least one steady state and derives a lower bound for the
+ aggregate capital-to-labour ratio. The third discusses government
+ debt. All proofs for the propositions of this paper are in a
+ separate appendix at the end.",
+ month = nov,
+ year = 1979
+}
+
+@UNPUBLISHED{Krusell1994-bb,
+ title = "Income and wealth heterogeneity, aggregate fluctuations, and the
+ representative agent",
+ author = "Krusell, P and Smith, A A",
+ year = 1994
+}
+
+@ARTICLE{Imrohoroglu1992-kx,
+ title = "The welfare cost of inflation under imperfect insurance",
+ author = "Imrohoroglu, A",
+ journal = "J. Econ. Dyn. Control",
+ volume = 16,
+ pages = "79--91",
+ year = 1992
+}
+
+@ARTICLE{Eaton1980-te,
+ title = "Labor supply, uncertainty, and efficient taxation",
+ author = "Eaton, J and Rosen, H S",
+ journal = "J. Public Econ.",
+ volume = 14,
+ pages = "365--374",
+ year = 1980
+}
+
+@ARTICLE{Cukierman1989-fd,
+ title = "A political theory of government debt and deficits in a
+ Neo-ricardian framework",
+ author = "Cukierman, A and Meltzer, A",
+ journal = "The American Economic Review",
+ volume = 79,
+ pages = "713--732",
+ year = 1989
+}
+
+@ARTICLE{Chamley1985-jq,
+ title = "Efficient taxation in a stylized model of intertemporal general
+ equilibrium",
+ author = "Chamley, C",
+ journal = "Int. Econ. Rev.",
+ volume = 26,
+ pages = "451--468",
+ year = 1985
+}
+
+@ARTICLE{Bewley1983-lj,
+ title = "A difficulty with the optimum quantity of money",
+ author = "Bewley, Truman",
+ journal = "Econometrica",
+ publisher = "JSTOR",
+ volume = 51,
+ number = 5,
+ pages = 1485,
+ month = sep,
+ year = 1983
+}
+
+@ARTICLE{Barro1979-px,
+ title = "On the determination of the public debt",
+ author = "Barro, Robert J",
+ journal = "J. Polit. Econ.",
+ publisher = "University of Chicago Press",
+ volume = 87,
+ number = "5, Part 1",
+ pages = "940--971",
+ abstract = "A public debt theory is constructed in which the Ricardian
+ invariance theorem is valid as a first-order proposition but
+ where the dependence of excess burden on the timing of taxation
+ implies an optimal time path of debt issue. A central proposition
+ is that deficits are varied in order to maintain expect ed
+ constancy in tax rates. This behavior implies a positive effect
+ on debt issue of temporary increases in government spending (as
+ in wartime) a countercyclical response of debt to temporary
+ income movements, and a one-to-one effect of expected inflation
+ on nominal debt growth. Debt issue would be invariant with the
+ outstanding debt-income ratio and, except for a minor effect,
+ with the level of government spending. Hypotheses are tested on
+ U.S. data since World WXar1. Results are basically in accord Fith
+ the theory. It also turns out that a small set of explanatory
+ variables can account for the principal movements in
+ interest-bearing federal debt since the 1920s.",
+ month = oct,
+ year = 1979
+}
+
+@ARTICLE{Aiyagari1994-kq,
+ title = "Uninsured idiosyncratic risk and aggregate saving",
+ author = "Aiyagari, S R",
+ journal = "Q. J. Econ.",
+ publisher = "Oxford University Press (OUP)",
+ volume = 109,
+ number = 3,
+ pages = "659--684",
+ abstract = "We present a qualitative and quantitative analysis of the
+ standard growth model modified to include precautionary saving
+ motives and liquidity constraints. We address the impact on the
+ aggregate saving rate, the importance of asset trading to
+ individuals, and the relative inequality of wealth and income
+ distributions.",
+ month = aug,
+ year = 1994,
+ language = "en"
+}
+
+@ARTICLE{Imrohoroglu1989-yp,
+ title = "Costs of business cycles with indivisibilities and liquidity
+ constraints",
+ author = "Imrohoroglu, A",
+ journal = "Journal of Political Economy",
+ volume = 97,
+ pages = "1364--1383",
+ year = 1989
+}
+
+@ARTICLE{Alvarez1992-ss,
+ title = "Banking in computable general equilibrium economies",
+ author = "Alvarez, F and Diaz-Giménez, J and Fitzgerald, T and Prescott, E C",
+ journal = "J. Econ. Dyn. Control",
+ volume = 16,
+ pages = "533--559",
+ year = 1992
+}
+
+@ARTICLE{Tauchen1986-vw,
+ title = "Finite state markov-chain approximations to univariate and vector
+ autoregressions",
+ author = "Tauchen, George",
+ journal = "Econ. Lett.",
+ publisher = "Elsevier BV",
+ volume = 20,
+ number = 2,
+ pages = "177--181",
+ abstract = "The paper develops a procedure for finding a discrete-valued
+ Markov chain whose sample paths approximate well those of a
+ vector autoregression. The procedure has applications in those
+ areas of economics, finance, and econometrics where approximate
+ solutions to integral equations are required.",
+ month = jan,
+ year = 1986,
+ language = "en"
+}
+
+@ARTICLE{Aiyagari1997-ix,
+ title = "The optimum quantity of debt",
+ author = "Aiyagari, S Rao and McGrattan, Ellen R",
+ abstract = "We find that the welfare gains to being at the optimum quantity of
+ debt rather than the current US level are small, and, therefore,
+ concerns regarding the high level of debt in the US economy may be
+ misplaced. This finding is based on a model of a large number of
+ infinitely lived households whose saving behavior is influenced by
+ precautionary saving motives and borrowing constraints. This model
+ incorporates a different role for government debt than is found in
+ standard models, and it captures different cost-benefit
+ trade-offs. On the benefit side, government debt enhances the
+ liquidity of households by providing an additional means of
+ smoothing consumption and by effectively loosening borrowing
+ constraints. On the cost side, the implied taxes have adverse
+ wealth distribution and incentive effects. In addition, government
+ debt crowds out capital via higher interest rates and lowers per
+ capita consumption.",
+ month = nov,
+ year = 1997
+}
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/self.bib b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/self.bib
new file mode 100644
index 00000000..8dc1a47b
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/self.bib
@@ -0,0 +1,7 @@
+@article{aiyagari1998,
+ title = {The Optimum Quantity of Debt},
+ author = {Aiyagari, S. Rao and McGrattan, Ellen R.},
+ journal = {Journal of Monetary Economics},
+ volume = {42},
+ year = {1998}
+}
diff --git a/models/We-Would-Like-In-Econ-ARK/OptimumDebt/subsequent-literature.bib b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/subsequent-literature.bib
new file mode 100644
index 00000000..aea5e28b
--- /dev/null
+++ b/models/We-Would-Like-In-Econ-ARK/OptimumDebt/subsequent-literature.bib
@@ -0,0 +1,151 @@
+% Subsequent Literature Bibliography
+% Papers that have cited: Aiyagari & McGrattan (1998) - "The optimum quantity of debt"
+%
+% Add BibTeX entries for papers that cite your work here.
+% You can export citations from Google Scholar, Litmap, or other sources.
+
+@article{optimum_aiyagari_2003,
+ title = {The Optimum Quantity of Debt: Technical Appendix *},
+ author = {Aiyagari, S. Rao and McGrattan, Ellen R.},
+ journal = {Annals of Economics and Finance},
+ year = {2003},
+ litmapsId = {205224242}
+}
+
+@article{public_makin_2005,
+ title = {Public Debt Sustainability and Its Macroeconomic Implications in ASEAN-4},
+ doi = {10.1355/ae22-3c},
+ author = {Makin, A.},
+ year = {2005},
+ litmapsId = {171386669}
+}
+
+@article{macroeconomics_heathcote_2009,
+ title = {Macroeconomics with Heterogeneous Households},
+ author = {Heathcote, Jonathan and Storesletten, Kjetil and Violante, Giovanni L.},
+ year = {2009},
+ litmapsId = {145273361}
+}
+
+@article{liquidity_wen_2013,
+ title = {Liquidity and Welfare},
+ author = {Wen, Yi},
+ journal = {2013 Meeting Papers},
+ year = {2013},
+ litmapsId = {149854532}
+}
+
+@article{optimal_legrand_2023,
+ title = {Optimal Policies with Heterogeneous Agents: Truncation and Transitions},
+ doi = {10.1016/j.jedc.2023.104737},
+ author = {Grand, François Le and Ragot, X.},
+ journal = {Journal of Economic Dynamics and Control},
+ year = {2023},
+ litmapsId = {265731773}
+}
+
+@article{targeted_chakrabarti_2021,
+ title = {Targeted interventions: Consumption dynamics and distributional effects},
+ author = {Chakrabarti, Anindya S. and Mishra, Abinash and Mohaghegh, Mohsen},
+ journal = {Research Papers in Economics},
+ year = {2021},
+ litmapsId = {110080865}
+}
+
+@article{universit_kankanamge_2008,
+ title = {UNIVERSITÉ PARIS I - PANTHÉON - SORBONNE},
+ author = {Kankanamge, Sumudu},
+ year = {2008},
+ litmapsId = {168497322}
+}
+
+@article{federal_boyd_2012,
+ title = {Federal Reserve Bank of Minneapolis Summer 1994 Are Banks Dead ? Or},
+ author = {Boyd, J. and Gertler, M. and Frictic, Macroeconomics With and Aiyagari, S.},
+ year = {2012},
+ litmapsId = {230975447}
+}
+
+@article{welfareimproving_viegas_2013,
+ title = {Welfare-improving government behavior and inequality in a heterogeneous agents model},
+ doi = {10.1016/j.jmacro.2013.05.005},
+ author = {Viegas, Miguel and Ribeiro, Ana Paula},
+ journal = {Journal of Macroeconomics},
+ year = {2013},
+ litmapsId = {15121736}
+}
+
+@article{public_kaas_2016,
+ title = {Public Debt and Total Factor Productivity},
+ doi = {10.1007/s00199-015-0900-0},
+ author = {Kaas, Leo},
+ journal = {Economic Theory},
+ year = {2016},
+ litmapsId = {106588316}
+}
+
+@article{32_derasmo_2016,
+ title = {Chapter 32 – What is a Sustainable Public Debt?},
+ doi = {10.1016/bs.hesmac.2016.03.013},
+ author = {D'Erasmo, P. and Mendoza, E. and Zhang, Jing},
+ year = {2016},
+ litmapsId = {243105638}
+}
+
+@article{optimal_chatterjee_2017,
+ title = {Optimal public debt redux},
+ doi = {10.1016/j.jedc.2017.08.005},
+ author = {Chatterjee, Santanu and Gibson, John and Rioja, Felix},
+ journal = {Journal of Economic Dynamics and Control},
+ year = {2017},
+ litmapsId = {262545674}
+}
+
+@article{working_kottelenberg_2019,
+ title = {Working Paper Series},
+ author = {Kottelenberg, Michael J. and Lehrer, Steven F.},
+ year = {2019},
+ litmapsId = {267616907}
+}
+
+@article{rational_domeij_2015,
+ title = {Rational Bubbles and Economic Crises: A Quantitative Analysis},
+ author = {Domeij, David and Ellingsen, Tore},
+ journal = {Research Papers in Economics},
+ year = {2015},
+ litmapsId = {151864210}
+}
+
+@article{optimal_bilbiie_2020,
+ title = {Optimal monetary policy and liquidity with heterogeneous households},
+ doi = {10.1016/j.red.2020.10.003},
+ author = {Bilbiie, Florin Ovidiu and Ragot, Xavier},
+ journal = {Review of Economic Dynamics},
+ year = {2020},
+ litmapsId = {30037942}
+}
+
+@article{optimal_grand_2021,
+ title = {Optimal fiscal and monetary policy with heterogeneous agents},
+ author = {Grand, F. and Martin-Baillon, Alaïs and Ragot, X. and Marcet, A. and Mitman, K. and Moser, Christian and Nuño, Galo and Ravn, M.},
+ year = {2021},
+ litmapsId = {263349879}
+}
+
+@article{politics_carroll_2021,
+ title = {The politics of flat taxes},
+ doi = {10.1016/j.red.2020.06.016},
+ author = {Carroll, Daniel R. and Dolmas, Jim and Young, Eric R.},
+ journal = {Review of Economic Dynamics},
+ year = {2021},
+ litmapsId = {150615334}
+}
+
+@article{america_gounopoulos_2025,
+ title = {When America Sneezes: US Monetary Policy & Information Spillovers to European Credit Markets},
+ doi = {10.2139/ssrn.5659930},
+ author = {Gounopoulos, Dimitrios and Konstantios, Dimitrios and Michaelides, Panayotis G. and Prelorentzos, Arsenios‐Georgios N. and Tran, Kien C.},
+ journal = {SSRN Electronic Journal},
+ year = {2025},
+ litmapsId = {292655603}
+}
diff --git a/prior-literature.md b/prior-literature.md
new file mode 100644
index 00000000..493be773
--- /dev/null
+++ b/prior-literature.md
@@ -0,0 +1,19 @@
+# Prior Literature Summary: The Optimum Quantity of Debt (Aiyagari & McGrattan, 1998)
+
+## The papers my ballpark paper cites
+
+Aiyagari & McGrattan (1998) builds on prior work establishing that liquidity constraints fundamentally change how government debt affects the economy. Bewley (1983) introduced the framework of infinitely lived agents facing uninsurable idiosyncratic risk and borrowing constraints, showing how precautionary saving motives emerge. Aiyagari (1994) extended this to a quantitative general equilibrium growth model, demonstrating how uninsured risk affects aggregate saving and wealth distribution. Woodford (1990) showed that public debt can serve as liquid assets when financial intermediation is imperfect, providing liquidity benefits and breaking Ricardian equivalence. Optimal taxation theory (Chamley 1986) provided the framework for analyzing the costs of debt-financed government spending.
+
+Despite these advances, a quantitative gap remained: prior work established mechanisms but did not quantify the optimal level of government debt. Woodford (1990) showed liquidity benefits but did not quantify the optimal level. Aiyagari (1994) provided a quantitative framework but focused on aggregate saving, not optimal debt policy. Barro (1979) and Chamley (1986) analyzed optimal fiscal policy in representative-agent models without liquidity constraints. Aiyagari & McGrattan (1998) filled this gap by combining the Bewley-Aiyagari framework, Woodford's liquidity insight, optimal taxation theory, and quantitative methods to provide a numerical answer: what is the optimal debt-to-GDP ratio? Their main finding—that welfare gains from moving to the optimal debt level are small—suggests concerns about high US debt levels may be overstated, a quantitative conclusion that prior theoretical work could not provide.
+
+## Key foundational papers
+
+- **Bewley (1983) - "A difficulty with the optimum quantity of money"**: Introduced the Bewley model framework with infinitely lived agents facing uninsurable idiosyncratic risk, borrowing constraints, and precautionary saving motives. This is the core theoretical foundation that all subsequent heterogeneous-agent models with liquidity constraints build upon.
+
+- **Aiyagari (1994) - "Uninsured idiosyncratic risk and aggregate saving"**: Extended Bewley's framework to a full general equilibrium growth model with production, showing how uninsured risk affects aggregate saving and wealth distribution. This paper provided the direct methodological foundation and quantitative framework that Aiyagari & McGrattan (1998) uses.
+
+- **Woodford (1990) - "Public debt as private liquidity"**: Established the key insight that government debt can serve as liquid assets when financial intermediation is imperfect, providing liquidity benefits and breaking Ricardian equivalence. This paper is central to Aiyagari & McGrattan's analysis of the benefits of government debt.
+
+- **Chamley (1986) - "Optimal taxation of capital income in general equilibrium"**: Provided the optimal taxation framework used to analyze the costs of debt-financed government spending, establishing how distortionary taxes affect welfare in general equilibrium models.
+
+- **Barro (1979) - "On the determination of the public debt"**: Established Ricardian equivalence, which Woodford (1990) and Aiyagari & McGrattan (1998) show fails with liquidity constraints. This paper represents the benchmark theory that Aiyagari & McGrattan's work modifies.
diff --git a/subsequent-literature-analysis.md b/subsequent-literature-analysis.md
new file mode 100644
index 00000000..e5a65764
--- /dev/null
+++ b/subsequent-literature-analysis.md
@@ -0,0 +1,21 @@
+# Subsequent Literature Analysis: The Optimum Quantity of Debt (Aiyagari & McGrattan, 1998)
+
+## Papers that cite my ballpark paper
+
+I found 18 papers in LitMaps.
+
+## What the subsequent literature tells us
+
+The follow-on work pushes the “debt as liquidity” insight into richer, more policy-relevant heterogeneous-agent settings. A key direction is **joint fiscal–monetary design**: rather than studying debt/taxes in isolation, recent papers analyze how debt policy interacts with monetary policy and liquidity when households are constrained and markets are incomplete.
+
+Another direction is **methods and implementation**: improved numerical techniques make it easier to solve optimal policy problems (and especially transitions) in high-dimensional HA models, which in turn enables studying targeted interventions and distributional effects. There is also movement toward **constraints that matter for real policy** (political feasibility, sustainability notions, and spillovers in more open settings).
+
+Open questions that show up repeatedly are: how to characterize **optimal debt paths** (not just long-run levels), how robust prescriptions are to **financial-sector frictions and crises**, and how well these mechanisms line up with **empirical evidence**—especially once distributional objectives and state-contingent policy rules are taken seriously.
+
+## Most important subsequent papers
+
+1. Le Grand & Ragot (2023), “Optimal Policies with Heterogeneous Agents: Truncation and Transitions”: New computational approach that makes optimal-policy HA models (especially transitions) more tractable, enabling more realistic policy experiments.
+2. Bilbiie & Ragot (2020), “Optimal monetary policy and liquidity with heterogeneous households”: Puts liquidity and HA constraints at the center of optimal monetary policy, clarifying the fiscal–monetary interaction the original debt paper abstracts from.
+3. Grand et al. (2021), “Optimal fiscal and monetary policy with heterogeneous agents”: Moves from “optimal debt” to integrated optimal policy design with multiple instruments in HA environments.
+4. Chakrabarti et al. (2021), “Targeted interventions: Consumption dynamics and distributional effects”: Highlights the shift toward targeted policy and explicit distributional outcomes, not just aggregate welfare.
+5. Carroll, Dolmas & Young (2021), “The politics of flat taxes”: Brings political feasibility/implementation constraints into the conversation, bridging normative prescriptions and what policies can actually pass.
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+% Subsequent Literature Bibliography
+% Papers that have cited: Aiyagari & McGrattan (1998) - "The optimum quantity of debt"
+%
+% Add BibTeX entries for papers that cite your work here.
+% You can export citations from Google Scholar, Litmap, or other sources.
+
+@article{optimum_aiyagari_2003,
+ title = {The Optimum Quantity of Debt: Technical Appendix *},
+ author = {Aiyagari, S. Rao and McGrattan, Ellen R.},
+ journal = {Annals of Economics and Finance},
+ year = {2003},
+ litmapsId = {205224242}
+}
+
+@article{public_makin_2005,
+ title = {Public Debt Sustainability and Its Macroeconomic Implications in ASEAN-4},
+ doi = {10.1355/ae22-3c},
+ author = {Makin, A.},
+ year = {2005},
+ litmapsId = {171386669}
+}
+
+@article{macroeconomics_heathcote_2009,
+ title = {Macroeconomics with Heterogeneous Households},
+ author = {Heathcote, Jonathan and Storesletten, Kjetil and Violante, Giovanni L.},
+ year = {2009},
+ litmapsId = {145273361}
+}
+
+@article{liquidity_wen_2013,
+ title = {Liquidity and Welfare},
+ author = {Wen, Yi},
+ journal = {2013 Meeting Papers},
+ year = {2013},
+ litmapsId = {149854532}
+}
+
+@article{optimal_legrand_2023,
+ title = {Optimal Policies with Heterogeneous Agents: Truncation and Transitions},
+ doi = {10.1016/j.jedc.2023.104737},
+ author = {Grand, François Le and Ragot, X.},
+ journal = {Journal of Economic Dynamics and Control},
+ year = {2023},
+ litmapsId = {265731773}
+}
+
+@article{targeted_chakrabarti_2021,
+ title = {Targeted interventions: Consumption dynamics and distributional effects},
+ author = {Chakrabarti, Anindya S. and Mishra, Abinash and Mohaghegh, Mohsen},
+ journal = {Research Papers in Economics},
+ year = {2021},
+ litmapsId = {110080865}
+}
+
+@article{universit_kankanamge_2008,
+ title = {UNIVERSITÉ PARIS I - PANTHÉON - SORBONNE},
+ author = {Kankanamge, Sumudu},
+ year = {2008},
+ litmapsId = {168497322}
+}
+
+@article{federal_boyd_2012,
+ title = {Federal Reserve Bank of Minneapolis Summer 1994 Are Banks Dead ? Or},
+ author = {Boyd, J. and Gertler, M. and Frictic, Macroeconomics With and Aiyagari, S.},
+ year = {2012},
+ litmapsId = {230975447}
+}
+
+@article{welfareimproving_viegas_2013,
+ title = {Welfare-improving government behavior and inequality in a heterogeneous agents model},
+ doi = {10.1016/j.jmacro.2013.05.005},
+ author = {Viegas, Miguel and Ribeiro, Ana Paula},
+ journal = {Journal of Macroeconomics},
+ year = {2013},
+ litmapsId = {15121736}
+}
+
+@article{public_kaas_2016,
+ title = {Public Debt and Total Factor Productivity},
+ doi = {10.1007/s00199-015-0900-0},
+ author = {Kaas, Leo},
+ journal = {Economic Theory},
+ year = {2016},
+ litmapsId = {106588316}
+}
+
+@article{32_derasmo_2016,
+ title = {Chapter 32 – What is a Sustainable Public Debt?},
+ doi = {10.1016/bs.hesmac.2016.03.013},
+ author = {D'Erasmo, P. and Mendoza, E. and Zhang, Jing},
+ year = {2016},
+ litmapsId = {243105638}
+}
+
+@article{optimal_chatterjee_2017,
+ title = {Optimal public debt redux},
+ doi = {10.1016/j.jedc.2017.08.005},
+ author = {Chatterjee, Santanu and Gibson, John and Rioja, Felix},
+ journal = {Journal of Economic Dynamics and Control},
+ year = {2017},
+ litmapsId = {262545674}
+}
+
+@article{working_kottelenberg_2019,
+ title = {Working Paper Series},
+ author = {Kottelenberg, Michael J. and Lehrer, Steven F.},
+ year = {2019},
+ litmapsId = {267616907}
+}
+
+@article{rational_domeij_2015,
+ title = {Rational Bubbles and Economic Crises: A Quantitative Analysis},
+ author = {Domeij, David and Ellingsen, Tore},
+ journal = {Research Papers in Economics},
+ year = {2015},
+ litmapsId = {151864210}
+}
+
+@article{optimal_bilbiie_2020,
+ title = {Optimal monetary policy and liquidity with heterogeneous households},
+ doi = {10.1016/j.red.2020.10.003},
+ author = {Bilbiie, Florin Ovidiu and Ragot, Xavier},
+ journal = {Review of Economic Dynamics},
+ year = {2020},
+ litmapsId = {30037942}
+}
+
+@article{optimal_grand_2021,
+ title = {Optimal fiscal and monetary policy with heterogeneous agents},
+ author = {Grand, F. and Martin-Baillon, Alaïs and Ragot, X. and Marcet, A. and Mitman, K. and Moser, Christian and Nuño, Galo and Ravn, M.},
+ year = {2021},
+ litmapsId = {263349879}
+}
+
+@article{politics_carroll_2021,
+ title = {The politics of flat taxes},
+ doi = {10.1016/j.red.2020.06.016},
+ author = {Carroll, Daniel R. and Dolmas, Jim and Young, Eric R.},
+ journal = {Review of Economic Dynamics},
+ year = {2021},
+ litmapsId = {150615334}
+}
+
+@article{america_gounopoulos_2025,
+ title = {When America Sneezes: US Monetary Policy & Information Spillovers to European Credit Markets},
+ doi = {10.2139/ssrn.5659930},
+ author = {Gounopoulos, Dimitrios and Konstantios, Dimitrios and Michaelides, Panayotis G. and Prelorentzos, Arsenios‐Georgios N. and Tran, Kien C.},
+ journal = {SSRN Electronic Journal},
+ year = {2025},
+ litmapsId = {292655603}
+}