We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks.

No abstract

We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks.

No abstract

The Greek economy has experienced three distinct phases in the past 20 years: a boom from 1999 to 2007, a crash from 2007 to 2012, and a flattening from 2012 to 2017. We explore these dynamics using a quantitative model of a two-sector small open economy with nominal frictions, collateral constraints, and endogenous utilization. We first evaluate the roles of shocks to productivity, financial conditions, fiscal policy, external demand, and disaster risk in contributing to the cycle. We then ask whether counterfactual policies such as an unexpected devaluation or an alternative mix of fiscal adjustments could have facilitated the recovery.