We introduce behavioral learning equilibria (BLE) into a multi-variate linear framework and apply it to New Keynesian DSGE models. In a BLE, boundedly rational agents use simple but optimal first-order autoregressive (AR(1)) forecasting rules whose parameters are consistent with the observed...

Countercyclical bank capital requirements have emerged as a popular regulatory tool to help smooth financial cycles. The idea is to reduce capital requirements when exogenous shocks cause aggregate bank capital to decrease so that regulation does not needlessly constrain banks' supply of credit....

This paper studies the impact government expenditure has on inflation by examining an augmented Phillips curve implied from a structural New Keynesian model, Our estimation results, based on external instruments, show that the augmented Phillips curve has a flatter slope than the canonical...

Do financial constraints amplify or dampen the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines (i) firm-level employment and balance sheet data, (ii) identified monetary policy shocks and (iii) survey data on...

I study how unsecured credit affects the extent to which unemployment insurance (UI) policies smooth cyclical fluctuations in aggregate consumption. To do so, I develop a real business cycle model with incomplete asset markets, frictional labor markets, and defaultable debt. Using empirically...

The consumption boom-bust cycle in the 2000s coincided with large fluctuations in the volume of home equity borrowing. Contrary to conventional wisdom, I show that homeowners largely borrowed for residential investment and not consumption. I rationalize this empirical finding using a calibrated...

This paper examines the effects of time-varying volatility on welfare. I construct a tractable endogenous growth model with recursive preferences, stochastic volatility, and capital adjustment costs. The model shows that a rise in volatility can decelerate growth in the absence of any level...

In order to understand what drives aggregate fluctuations, many macroeconomic models point to aggregate shocks and discount the contribution of firm-specific shocks. Recent research from other developed countries, however, has found that aggregate fluctuations are in part driven by idiosyncratic...

We use controlled laboratory experiments to test the causal effects of central bank communication on economic expectations and to distinguish the underlying mechanisms of those effects. In an experiment where subjects learn to forecast economic variables, we find that central bank communication...

In this paper, we present new evidence from unobserved components time-series models on the cyclical behavior of the demand for education relative to economic cycles. We investigate the cyclical properties of schooling decisions, the time-varying exposure of these decisions to changes in the...