This paper shows that there are striking implications that stem from including durable goods in otherwise conventional sticky price models. The behavior of these models depends heavily on whether durable goods are present and whether these goods have sticky prices. If long-lived durables have...

In this paper we examine the difference between T-Bill returns and common stock returns in Turkey. We observe that there is a bond premium in Turkey unlike the equity premia in developed countries. As an attempt to explain this surprising observation, we incorporate inflation risk and default...

Just when China’s leaders receive conflicting signals of “overheating” and “below-potential growth”, they encounter tremendous external pressure to revalue the Renminbi (RMB) substantially. Our conclusion is that the major macroeconomic challenges have their roots in China’s...

The consumer has been on a tightrope since the bursting of the "new economy" bubble, as losses in equity markets have been partly offset by gains in real estate and fiscal support and mortgage refinancing have partly offset increased consumer cautiousness. The consumer will remain on a tightrope...

We use CEX repeated cross-section data on consumption and income, to evaluate the nature of increased income inequality in the 1980s and 90s. We decompose unexpected changes in family income into transitory and permanent, and idiosyncratic and aggregate components, and estimate the contribution...

I explore the dynamics in overlapping generations models with pure exchange and lump-sum taxes, when the second period after tax endowment is negative, and contrast the characteristics of equilibria to those of models with positive after tax endowments. In particular, if the intertemporal...

This paper investigates the dynamics of output, employment and prices in an economy with costs of adjusting labor and prices. In an economy with non convex adjustments costs, firms do not adjust labor and prices continuously to accommodate every shift in demand. Rather, firms adjust employment...

Much research on the dynamics of the aggregate economy concerns the adjustment policy of the microeconomic units. This paper investigates the optimal adjustment policy when there are seasonal fluctuations and fixed adjustment costs. The optimal policy in this case can be described in terms of...

This paper proposes a novel Maximum Likelihood (ML) strategy to estimate Euler equations implied by dynamic stochastic theories. The strategy exploits rational expectations cross-equation restrictions, but circumvents the problem of multiple solutions that arises in Sargent's (1979) original...

If firm pricing is state, rather than time-dependent, firms are more likely to change prices whenever aggregate and idiosyncratic shocks reinforce each other and trigger desired price changes in the same direction. The distribution of idiosyncratic shocks across adjusting firms therefore varies...