ABSTRACT How can mortgages be redesigned to reduce macrovolatility and default? We address this question using a quantitative equilibrium life‐cycle model. Designs with countercyclical payments outperform fixed payments. Among those, designs that front‐load payment reductions in recessions outperform those that spread relief over the full term. Front‐loading alleviates liquidity constraints when they bind most, reducing default and stimulating housing demand. To illustrate, a fixed‐rate mortgage (FRM) with an option to convert to adjustable‐rate mortgage, which front‐loads payment reductions relative to an FRM with an option to refinance underwater, reduces price and consumption declines six times as much and default three times as much.

ABSTRACT We develop a theory that links the U.S. dollar's valuation in FX markets to the convenience yield that foreign investors derive from holding U.S. safe assets. We show that this convenience yield can be inferred from the Treasury basis, the yield gap between U.S. government and currency‐hedged foreign government bonds. Consistent with the theory, a widening of the basis coincides with an immediate appreciation and a subsequent depreciation of the dollar. Our results lend empirical support to models that impute a special role to the United States as the world's provider of safe assets and the dollar as the world's reserve currency.

The field of asset pricing is a rich and diverse discipline that has contributed to many areas of discourse, including those of fundamental importance to policy makers, investors, and households.1 As we look ahead during a time of substantial economic and political change, it is apparent that society faces many pressing questions, both new and old, that the field is uniquely suited to informing.To contribute to this conversation, the NBER Asset Pricing program convened a panel discussion on “Perspectives on the Future of Asset Pricing” at its November 8, 2019, meeting that took place at Stanford University. The objective of the panel was to identify some of the important questions the field could productively address in the next five to 10 years. The panelists, consisting of experts in several subfields of asset pricing, were invited to share their views on these questions with an eye toward innovative research topics that are ripe for exploring, and the metrics the field could be using to gauge progress.