We study the cyclical implications of credit market imperfections in a quantitative dynamic, stochastic general equilibrium model wherein firms face persistent shocks to aggregate and individual productivity. In our model economy, optimal capital reallocation is distorted by two frictions:...

We develop an equilibrium business cycle model where nonconvex delivery costs lead firms to follow (S, s) inventory policies. Calibrated to postwar US data, the model reproduces two-thirds of the cyclical variability of inventory investment. Moreover, it delivers strongly procyclical inventory...

We study a model of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity, and nonconvex adjustment costs lead them to pursue generalized (S, s) investment rules. We allow persistent heterogeneity in both capital and total factor productivity...

The lumpiness of investment activity at the plant level is a well-established fact. Previous research has suggested that such discrete and occasional adjustments have significant aggregate implications. In particular, it has been argued that changes in plants' willingness to invest in response...

We develop a monetary model that is unique in its ability to deliver a negative correlation between aggregate consumption growth and short-term real interest rates consistent with U.S. data. The essential ingredient to this success is endogenous asset market segmentation permitting the extent of...

Optimal monetary policy maximizes the welfare of a representative agent, given frictions in the economic environment. Constructing a model with two sets of frictions -- costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods -- we find optimal monetary...