We consider an alternative modelling approach to the mainstream DSGE paradigm, namely a Dynamic Stochastic General Disequilibrium (DSGD) baseline model of continuous and gradual adjustment processes on interacting real and financial markets. Heterogeneous capital gain expectations (chartists and...

This paper studies the importance of idiosyncratic endowment shocks for aggregate asset prices in continuous time. My generalized framework accommodates jumps and heterogeneous recursive preferences. I show that countercyclical cross-sectional risk is irrelevant to risk premia if and only if all...

This paper explores the dynamic relationship between firm debt and real outcomes using data from 24 European economies over the period of 2000-2018. Based on macro data, it shows that a rise in credit to firms is associated with an increase in employment growth in the short-term, but employment...

Job search decisions of unemployed workers are forward-looking and respond to expected returns from the search process. When expected returns (or discount rates) are high, the discounted benefits from the search process are low. Thus unemployed workers search less intensively for jobs. We build...

Ljungqvist and Sargent (2017) (LS) show that unemployment fluctuations can be understood in terms of a quantity they call the "fundamental surplus." However, their analysis ignores risk premia, a force that Hall (2017) shows is important in understanding unemployment fluctuations. We show how...

This note deals with the stability properties of an economy where the central bank is concerned with stock market developments. We introduce a Taylor rule reacting to stock price growth rates along with inflation and output gap in a New-Keynesian setup. We explore the performance of this rule...

We investigate the change in the aggregate earnings-returns relation from negative to positive. We first identify a gradual structural break around the second quarter of 1991. We then find evidence of three contributing factors to the change in the relation. They are: i) an increase in the...

We study the macrofinancial linkage of stock market and financial system stability in Indonesia. Three stock market-based measures are proposed and are tested to search for possible empirical link from observed stock prices (stock market mispricing), combination of observed price and fundamental...

In this paper, we study a new channel to explain firms' price setting behavior. We propose that uncertainty about factor prices has a positive effect on markups. We show theoretically that firms with higher shares of inputs with volatile prices set higher markups. We use the Bartik shift-share...