Assessing the fundamental value of a wide range of asset-backed securities is costly. As a result, these assets can become information insensitive, which allows them to be used as collateral in credit transactions. In this paper, we show that while it is true that information-insensitive assets can play a liquidity role, the fact that they play this role reinforces their information-insensitivity. This implies that the availability of alternative ways of financing can harm the liquidity role of assets, even if these alternatives are costly and not used in equilibrium. The reason is that such options raise the asset's sensitivity to information by increasing the relative importance of their fundamental value vis-a-vis their role as collateral.

We present an aggregation theory that allows the empirical estimation of a Social Welfare Function (SWF) in heterogeneous-agent economies. Individuals are assumed to hold different views on how the government should value others’ welfare, giving rise to Individual Welfare Functions (IWFs) shaped by personal life experiences. The SWF is obtained as a politically weighted aggregation of these IWFs. We develop an estimation strategy that identifies both the SWF and IWFs from observed fiscal instruments—capital, consumption, and labor taxes, as well as public debt—extending the inverse-optimal approach to a general equilibrium setting. Applying this framework to France and the United States, we find that France’s SWF is more egalitarian, emphasizing low-income welfare, while the US SWF favors low-redistribution. Simulating the US fiscal system under the French SWF reveals that welfare preferences play a central role in shaping fiscal policy and income inequality.

By setting interest rates, monetary policy affects the cost of carrying inventories – giving rise to a “cost-of-carry channel” of monetary policy transmission. Via a simple model, we show that higher inventory carrying costs drive firms, especially those holding larger inventories, to cut their prices. We test this hypothesis using data from the U.S. goods, housing, and oil markets – finding robust evidence supporting the cost-of-carry channel. We then introduce this channel into a New Keynesian setup and show that it makes optimal policy more focused on inflation stabilization when inventories are more plentiful – the reason being that the central bank faces a more favorable sacrifice ratio in such an environment.

Does high public debt force governments to tolerate inflation?  In a heterogeneous-agent Ramsey framework calibrated to the United Kingdom at three debt levels, the optimal planner keeps inflation at zero regardless of the debt ratio, absorbing shocks entirely through the progressive tax structure – both the level and the progressivity of labor taxation.  Progressive taxation dominates inflation as a redistributive tool because it targets income directly, whereas inflation erodes savings regressively.  When the tax structure is constrained, inflation re-emerges and scales with debt.  The conventional wisdom linking high debt to inflation is therefore conditional on fiscal rigidity, not a generic feature of indebted economies.

Swings in global commodity prices affect sovereign risk unevenly across countries. Using a shift-share strategy over 41 commodities, we show that import-price shocks raise sovereign spreads and reduce borrowing, while export-price shocks have weaker effects and tend to lower spreads. To explain this asymmetry, we develop a sovereign default model in which a common global factor drives prices. A surge in global prices affects risk through a price-index channel, which raises consumption costs, and a terms-of-trade income channel. Calibrating the model to 37 emerging economies, we show that trade structure predicts whether price booms widen or compress sovereign spreads.

We estimate a production function model of aggregate economic growth by including two important dimensions of human capital - education and health. Our main intention was to study the importance of health in explaining economic growth in different countries and in different regions. In order to achieve this ambition we divided the countries into four regions: Africa Sub Saharan; Latin America and Caribbean; South Asia, Middle East, North Africa, East Asia and Pacific; and Europe, Central Asia and North America. Our findings suggest that health has a positive and statistically significant effect on economic growth. For the whole world, it suggests that an increase in one-year life expectancy leads to a growth of output per capita in the countries of around 1.36% when we control for the worldwide technological frontier and about 2.10% when we do not control for this fixed effect in time. The results we found suggest that the omission of health produces a misspecification bias of the coefficients of the production function. In most part of the empirical exercises we did, we found that the effect of schooling was also positive and statistically significant, even when we controlled for health capital. By analyzing the importance of these two dimensions of human capital in the different regions, we found that education is more important in Latin America and African Sub-Saharan countries than in countries from the region Europe, Central Asia, and North America, whereas life expectancy is more important in explaining the growth in this last region. Our results indicate that the role of different forms of capital in the growth process change as income rise.