In this paper we provide analytical and Monte Carlo evidence that Chow and Predictive tests can be consistent against alternatives that allow structural change to occur at either end of the sample. Attention is restricted to linear regression models that may have a break in the intercept. The...

This article uses a DSGE framework to evaluate the role of monetary policy in determining the likelihood of encountering the zero lower bound. We find that the probability of experiencing episodes of being at zero lower bound depends almost exclusively on the monetary policy rule. A policy rule,...

In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly...

In this paper we use a standard neoclassical model supplemented by some frictions to understand large price swings in the housing market. We construct a two good general equilibrium model in which housing is a composite good produced using structures and land. We revisit the connection between...

Since the late 1980s the Fed has implemented monetary policy by adjusting its target for the overnight federal funds rate. Money's role in monetary policy has been tertiary, at best. Indeed, several influential economists have suggested that money is irrelevant for monetary policy. They suggest...

We use a dynamic stochastic general equilibrium model to address two questions about U.S. monetary policy: 1) Can monetary policy elevate output when it is below potential? and 2) Is the zero lower bound a trap? The model's answer to the first question is yes it can, but the effect is only...

Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of "informal" unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both...

Financial capital and fixed capital tend to flow in opposite directions between poor and rich countries. Why? What are the implications of such two-way capital flows for global trade imbalances and welfare in the long run? This paper introduces frictions into a standard two-country neoclassical...

The run-up in oil prices since 2004 coincided with growing investment in commodity markets and increased price comovement among different commodities. We assess whether speculation in the oil market played a role in driving this salient empirical pattern. We identify oil shocks from a large...

How do job losers use default -- a phenomenon 6x more prevalent than bankruptcy -- as a type of “informal" unemployment insurance, and more importantly, what are the social costs and benefits of this behavior? To this end, I establish several new facts: (i) job loss is the main reason for...