NewMarkov-Perfect Equilibria in Differential Games — with an Application to Climate Policy 11 May 2026 Niko S. Jaakkola and Florian O.O. WagenerWe analyse discontinuous Markovian strategies for differential games. The best response correspondence uniquely maps almost all profiles of opponents’ strategies back to the strategy space. We thus make Markov-perfect equilibria in a wide class of differential games well-behaved, resolving a long-standing open problem. We provide a readily applicable necessary and sufficient condition for best responses and Markov-perfect Nash equilibria.
NewEliciting Multiple Prior Beliefs 11 May 2026 Mohammed Abdellaoui, Philippe Colo, and Brian HillDespite the increasing importance of multiple priors in various domains of economics, choice-based incentive-compatible multiple-prior elicitation remains an open problem. This paper develops a solution, comprising a preference-based identification of a subject’s probability interval for an event, and a method for eliciting it. The method applies under weak decision-theoretic assumptions, with no need for probabilistic sophistication.
NewLoose Monetary Policy and Financial Instability 11 May 2026 Maximilian Grimm, Òscar Jordà, Moritz Schularick, and Alan M. TaylorDo periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data.
NewOptimal Labor Income Taxation: A Flexible Moral Hazard Approach 11 May 2026 Narayana R. KocherlakotaThis paper reconsiders the question of optimal labor income taxes for the very rich in the context of a flexible moral hazard (FMH) model. In this setting, risk is not exogenous. Rather, each agent can affect the probabilities of all possible income outcomes by allocating a fixed time endowment across a variety of distinct tasks. I prove that the optimal income tax rates on high-end earners and the optimal Pareto tail index of the pre-tax labor income distribution are both endogenously determined by agent preferences.
NewMonetary Policy and Endogenous Financial Crises 8 May 2026 Frédéric Boissay, Fabrice Collard, Jordi Galí, and Cristina ManeaWhat are the channels through which monetary policy affects financial stability? Can (and should) central banks prevent financial crises by deviating from price stability? To what extent may monetary policy itself unintentionally breed financial vulnerabilities? We answer these questions using a New Keynesian model with capital accumulation and endogenous financial crises due to adverse selection and moral hazard in credit markets.
NewMoney Markets, Collateral and Monetary Policy 8 May 2026 Fiorella De Fiore, Marie Hoerova, Ciaran Rogers, and Harald UhligWe document dramatic changes in euro area interbank money markets during the financial and sovereign debt crises: unsecured borrowing declined across the euro area, while secured market haircuts on sovereign bonds increased, and bank borrowing from the European Central Bank rose in southern countries. We construct a quantitative general equilibrium model to assess the macroeconomic impact of these developments and the associated policy response.
NewOpen Rule Legislative Bargaining 4 May 2026 Volker Britz and Hans GersbachThe seminal paper by Baron and Ferejohn (1989) leaves significant gaps in our understanding of open rule bargaining. We aim to fill these gaps by providing a fresh analysis of open rule bargaining. Our approach relies on an appealing class of stationary equilibria. In this class, we show that delays tend to be longer and allocations tend to be less egalitarian than originally predicted by Baron and Ferejohn.
NewCounterfactual Analysis for Structural Dynamic Discrete Choice Models 4 May 2026 Myrto Kalouptsidi, Yuichi Kitamura, Lucas Lima, and Eduardo Souza-RodriguesDiscrete choice data allow researchers to recover differences in utilities, but these differences may not suffice to identify policy-relevant counterfactuals of interest. In fact, in the case of dynamic discrete choice models, only a narrow set of counterfactuals are point-identified. In this paper, we explore how much one can learn about counterfactual outcomes of interest within this framework.
