Can governments use real bonds such as Treasury Inflation-Protected Securities (TIPS) to tame inflation? We propose a novel framework of optimal debt management with sticky prices and a government issuing nominal and real state-uncontingent bonds. A government debt portfolio with both nominal and real bonds helps completing markets unless the monetary policy stance renders them perfect substitutes. Under Full Commitment, the government borrows with nominal debt and accumulates real assets, to be able to use inflation to smooth taxes. With No Commitment, the government portfolio favors real bonds to strategically prevent future governments from monetizing debt ex-post. Quantitatively, our model with No Commitment is consistent with the small and persistent TIPS share in U.S. data. A higher TIPS share mitigates the commitment friction, and effectively curbs inflation.

This paper studies why market hours worked are roughly flat across the U.S. wealth distribution, a pattern that standard heterogeneous-agent models struggle to match. We develop a model with consumption quality choice, non-homothetic preferences, and a multi-sector production structure. The framework generates realistic consumption patterns and helps explain why wealthier households do not necessarily work fewer hours.

This paper uses supervised machine learning to approximate expectations in macro-finance models, building on the parameterized expectations algorithm. We show that a neural-network-based method can handle multicollinearity in simulated state variables and apply it to an optimal debt management problem with multiple bond maturities. The results highlight an active role for medium-term maturities in fiscal responses to expenditure shocks.

How should optimal policy manage disaster risk? We study an optimal fiscal policy problem with defense capital that both deters war and insures against wartime spending needs. Calibrating the war-risk channel with the Geopolitical Risk Index, we show analytically and quantitatively that optimal defense financing relies heavily on debt. Borrowing lowers current tax distortions; although it raises future distortions, defense investment reduces the probability that costly war states occur. Heightened geopolitical risk therefore calls for larger debt-financed defense spending and delayed taxation compared to financing other types of spending. Results are robust to optimal monetary policy and preemptive-strike incentives.

Bank markups have risen substantially, dispersion across banks has increased, and large banks now charge higher markups than smaller institutions. We develop a general equilibrium model in which persistent borrower and depositor relationships endogenously generate heterogeneous bank market power. Banks are dynamic two-sided intermediaries that compete for customers while inheriting partially captive borrower and depositor bases. Relationship capital creates a trade-off between current margins and future franchise value, generating endogenous loan markups and deposit markdowns that vary across banks. Regulatory constraints and costly external equity make market power on one side of the balance sheet affect pricing on the other, linking deposit markdowns and loan markups. Quantitatively, two-sided bank market power has sizable macroeconomic implications, reducing financial intermediation and lowering aggregate output. Policy-rate changes alter franchise values, leading banks with different customer bases to adjust loan and deposit rates differently.

How does housing illiquidity affect household risk-aversion and saving behavior? This paper shows that when housing services provide utility, the risk over the relative consumption ratio of nondurables and houses determines household relative risk aversion and drives asset prices. I show in a calibrated heterogeneous-agents model that accounting for the relative consumption risk (i) helps to explain challenging asset pricing facts, such as the countercyclical market price of risk and a stable risk-free rate, (ii) greatly amplifies the business cycle fluctuations, (iii) illuminates the new source of business cycle costs (iv) helps to understand the endogenous variation in uncertainty.