Research

Working Papers
Brunnermeier, Markus, Sebastian Merkel, and Yuliy Sannikov. Working Papers. “A Safe-Asset Perspective for an Integrated Policy Framework”. Abstract
Borrowing from Brunnermeier and Sannikov (2016, 2019) this policy paper sketches a policy framework for emerging market economies by mapping out the roles and interactions of  monetary policy, macroprudential policies, foreign exchange interventions, and capital controls. Safe assets are central in a world in which financial frictions, distribution of risk, and risk premia are important elements. The paper also proposes a global safe asset for a more self-stabilizing global financial architecture.
Brunnermeier, Markus, Sebastian Merkel, and Yuliy Sannikov. Working Papers. “The Fiscal Theory of the Price Level with a Bubble”. Abstract
This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy’s growth rate.
Adam, Klaus, and Sebastian Merkel. Working Papers. “Stock Price Cycles and Business Cycles”. Abstract

We present a simple model that quantitatively replicates the behavior of stock prices and business cycles in the United States. The business cycle model is standard, except that it features extrapolative belief formation in the stock market, in line with the available survey evidence. Extrapolation amplifies the price effects oftechnology shocks and - in response to a series of positive technology surprises - gives rise to a large and persistent boom and bust cycle in stock prices. Boom-bust dynamics are more likely when the risk-free interest rate is low because low rates strengthen belief-based amplification. Stock price cycles transmit into the real economy by generating inefficient price signals for the desirability of new investment.The model thus features a `financial accelerator', despite the absence of financial frictions. The financial accelerator causes the economy to experience persistent periods of over- and under-accumulation of capital.

Journal Article
Adam, Klaus, Johannes Beutel, Albert Marcet, and Sebastian Merkel. 2015. “Can a Financial Transaction Tax Prevent Stock Price Booms?” Journal of Monetary Economics 76: S90-S109. Abstract
We present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief differences, introducing financial transactions taxes (FTTs) remains undesirable. While FTTs reduce the size and length of boom–bust cycles, they increase the likelihood of such cycles, thereby overall return volatility and wealth redistribution. Contingent FTTs, which are levied only above a certain price threshold, give rise to problems of equilibrium multiplicity and non-existence.