The Review of Economic Studies is one of the core journals in economics. It is essential reading for economists, consistently ranking among the top five journals.

We 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.

Despite 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.

Do 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.

This 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.

What 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.

We 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.