This paper analyzes the AI infrastructure boom as a physical capital buildout centered on data centers, power infrastructure, cooling systems, and specialized chips. It studies how this buildout is financed through hyperscalers, third-party developers, REITs, private credit, and structured finance, and discusses the implications for leverage, risk allocation, and financial stability.
This chapter summarizes the tectonic shifts that took place in the U.S. housing market between 2019 and 2025. I explore the roles of remote work and lower interest rates in the dramatic rise of aggregate house prices, the"flattening" of the urban bidrent curve in the cross-section of locations, and the fiscal implications of the "Urban Doom Loop." I discuss how mortgage lock-in effects may have stabilized house prices in the wake of more recent increases in interest rates, at the expense of residential mobility.
Working from home resulted in a sharp contraction in office demand. We built a valuation model to find that the office stock lost about 45% in value. More for low-quality buildings and in cities with a larger IT sector and less for trophy buildings. We discuss the implications for mortgage lenders and the vitality of cities.
In the presence of aggregate risk, governments face a trade-off between insuring taxpayers or bondholders. The literature assumes that the government can finance deficits at the risk-free rate, protecting bondholders at the expense of taxpayers. We characterize the implications of this assumption on the surplus process. Under reasonable debt dynamics, counter-cyclical debt issuance that protects taxpayers against adverse macro-economic shocks is limited in time and scope, and comes at the expense of higher long-run risk.
We study three centuries of U.K. fiscal history. Before WW-I, when the U.K. dominated global bond markets, the U.K.’s government debt was not always fully backed by its future surpluses, even after accounting for the seigniorage revenue from convenience yields. As predicted by theories of safe asset determination, investors concentrate extra fiscal capacity in a single country, the global safe asset supplier, based on relative macro fundamentals, and its debt growth may temporarily outstrip what is warranted by its own macro fundamentals.
We develop a conceptual framework and an empirical methodology to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability. We mark-to-market the value of banks' assets due to interest rate increases from Q1 2022 to Q1 2023, revealing an average decline of 10%, totaling about $2 trillion in aggregate. We present a model illustrating how asset value declines due to higher rates can lead to self-fulfilling solvency runs even when banks' assets are fully liquid.