Various papers have identified shocks to investment as major drivers of output, investment, hours, and interest rates. These investment shocks have been linked to financial frictions because financial markets are instrumental in transforming consumption goods into installed capital. However, the...

We study the effects of financial uncertainty on investment dynamics in the U.S. using a vector autoregression with drifting parameters and stochastic volatilities. We find time-varying negative effects of financial uncertainty shocks on investment. These effects have declined in the post-WWII...

This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these...

This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance...

We shed new light on the effects of monetary policy shocks in the US. Gertler and Karadi (2015) suggest that movements in credit costs may result in substantial impact of monetary policy shocks on economic activity. Using the proxy SVAR framework, we show that once the Volcker disinflation...

The Basel III net stable funding requirement, scheduled for adoption in 2018, requires banks to use a minimum share of long-term wholesale funding and deposits to fund their assets. A similar regulation has been in place in New Zealand since 2010. This paper introduces the stable funding...

We estimate a time-varying parameter VAR (TVP-VAR) with stochastic volatility using post- WWII U.S. data to study the effects of uncertainty shocks on inflation. We find the response of inflation to be statistically insignificant until mid-to-late 1990s and negative thereafter. Our findings...

This paper argues that the application of loss aversion to wage determination can explain the deflation puzzle: the failure of persistently high unemployment to exert a persistent downward impact on the rate of inflation in money wages. This is an improvement on other theories of the deflation...

This paper investigates the effect of child dependency on the economy and external imbalances under an asymmetric demographic and productivity transition within a lifecycle model. It embeds dependent children within a two-country model with lifecycle features to examine child dependency’s...

How and under what circumstances can adjusting the inflation target serve as a stabilization-policy tool and contribute to welfare improvement? We answer these questions quantitatively with a standard New Keynesian model that includes cost-push type shocks which create a trade-off between...