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We introduce generalized autoregressive gamma (GARG) processes, a class of autoregressive and moving-average processes in which each conditional moment dynamic is driven by a different and identifiable moving average of the variable of interest. We show that using GARG processes reduces pricing errors by substantially more than using existing autoregressive gamma processes does.

The present paper shows that, everything else equal, some transactions to transfer portfolio credit risk to third-party investors increase the insolvency risk of banks. This is particularly likely if a bank sells the senior tranche and retains a sufficiently large first-loss position.

We introduce a new framework that facilitates term structure modeling with both positive interest rates and flexible time-series dynamics but that is also tractable, meaning amenable to quick and robust estimation.

Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation.

We study how different types of monetary policy shape the distributional effects of external economic shocks on households’ consumption in a small open economy. Our results present a trade-off between maintaining overall stabilization and controlling consumption inequality.

The exponential family, relative entropy, and distortion are methods of transforming probability distributions. We establish a link between those methods, focusing on the relation between relative entropy and distortion.

This paper studies the implications of model uncertainty for wealth distribution in a tractable general equilibrium model with a borrowing constraint and robustness à la Hansen and Sargent (2008). Households confront model uncertainty about the process driving the return of the risky asset, and they choose robust policies.

We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity.