This paper examines the importance of productivity shocks in accounting for salient features of U.S. economic developments during the second half of the 1990s, including the surge in investment spending, the substantial deterioration of the trade balance, and the modest decline in inflation. We...

If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and...