A model with collateral constraints displays asymmetric responses to house price changes. When housing wealth is high, collateral constraints become slack, and the response of consumption and hours to shocks that move house prices is positive yet small. When housing wealth is low, collateral...

This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two...

The consensus in the recent literature is that the gains from international monetary cooperation are negligible, and so are the costs of a breakdown in cooperation. However, when assessed conditionally on empirically-relevant dynamic developments of the economy, the welfare cost of moving away...

Investment-specific technology (IST) shocks are often interpreted as multi-factor productivity (MFP) shocks in a separate investment-producing sector. However, this interpretation is strictly valid only when some stringent conditions are satisfied. Some of these conditions are at odds with the...

In a two-country DSGE model, the effects of foreign demand shocks on the home country are greatly amplified if the home economy is constrained by the zero lower bound on policy interest rates. This result applies even to countries that are relatively closed to trade such as the United States....

This paper investigates how oil price shocks affect the trade balance and terms of trade in a two country DSGE model. We show that the response of the external sector depends critically on the structure of financial market risk-sharing. Under incomplete markets, higher oil prices reduce the...

Gali and Gertler (1999) are the first to find that the baseline sticky price model fits the U.S. data well. I examine the robustness of their estimates along two dimensions. First, I show that their IV estimates are not robust to an alternative normalization of the moment condition being...

One of the criticisms routinely advanced against models of the business cycle with staggered contracts is their inability to generate inflation persistence. This paper finds that staggered Taylor contracts are, in fact, capable of reproducing the inflation persistence implied by U.S. data....

In this paper, we describe a new multi-country open economy SDGE model named SIGMA that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large-scale econometric policy model (the FRB/Global model) for an array of shocks that...

In the last half of the 1990s, labor productivity growth rose in the U.S. and fell almost everywhere in Europe. We document changes in both capital deepening and multifactor productivity (MFP) growth in both the information and communication technology (ICT) and non-ICT sectors. We view MFP...