Markov-switching rational expectations (MSRE) models can bring out fresh insights beyond what linear rational expectations models have done for macroeconomics, as noted and predicted by Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009), among others. However, a lack of tractable...

This paper identifies two channels through which the economy can generate endogenous inflation and output volatility, an empirical regularity, by introducing model uncertainty into a Lucas-type monetary model. The equilibrium path of inflation depends on agents' expectations and a vector of...

Measured total factor productivity often declines sharply during financial crises. In 1982, the Chilean manufacturing sector suffered a severe contraction in output, most of which can be accounted for by a falling Solow residual. This paper uses establishment data from the Chilean manufacturing...

This paper analyzes and computes the equilibria of economies with large numbers of heterogeneous agents who have different asset trading technologies, preferences and beliefs. We illustrate the value of our method by using it to evaluate the implications of these heterogeneities through several...

We study the role of brand capital -- a primary form of intangible capital -- for firm valuation and risk in the cross section of publicly traded firms. Using a empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low...

This paper studies the effects of import-price shocks on measured output and productivity in a standard small open economy model and quantifies such effects in the case of the Korean crisis of 1997-98. I argue that it is the price of imported goods relative to the price of domestic goods but not...

Do fluctuations of the labor wedge, defined as the gap between the firm's marginal product of labor (MPN) and the household's marginal rate of substitution (MRS), reflect fluctuations of the gap between the MPN and the real wage or fluctuations of the gap between the real wage and the MRS? For...

We study how an occasionally binding capacity constraint affects the properties of business cycles. A real business cycle model is constructed where production takes place at individual plants and the number of plants operated varies over the cycle. The capacity constraint binds in states where...

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these...

We extend the basic RBC model to allow for biased technical changes. One broad definition of biased technical changes is changes that directly affect factor elasticities. Given the link between changes in factor elasticities and factor shares, observed fluctuations in US labor's share are...