Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our...

This paper investigates the determinants of business cycle comovement between countries. Our dataset includes over 100 countries, both developed and developing. We search for variables that are “robust” in explaining comovement, using the approach of Leamer (1983). Variables considered are...

We introduce two modifications into the standard real business cycles model: habit persistence preferences and limitations on intersectoral mobility. The resulting model is consistent with the observed mean equity premium, mean risk free rate and Sharpe ration on equity. With respect to the...

Fluctuations in the terms of trade the price of a country’s exports relative to the price of its imports are a source of perennial concern to policymakers in developing countries and industrialized nations alike. Terms of trade growth is extremely volatile and can lead to sudden changes in a...

Using ‘business cycle accounting’ (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is...

A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. We exploit these observations to devise diagnostic methods that are useful for...

Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality....

This paper undertakes an exhaustive search for robust determinants of international trade, where "robustness" is tested using three popular empirical methods. The paper is frankly atheoretical: our goal is solely to establish statistically robust relationships. Along the way, however, we relate...

This paper develops a Walrasian equilibrium theory of establishment level dynamics and matching frictions and uses it to evaluate the effects of congestion externalities in the matching process and determine the government interventions that are needed to implement a Pareto optimal allocation....

In his famous 1987 monograph, Robert Lucas argued that further stabilizing the business cycles that persisted in the post-War era was pointless, because these cycles had a negligible effect on societal well-being. In particular, Lucas demonstrated that society should be willing to pay only a...