This paper explores how financial frictions and financial shocks can contribute to jobless recoveries. We incorporate financial frictions and financial shocks into a real business cycle model in which firms determine not only their investment in capital and employment of workers, but also...

Capital reallocation is procyclical and dispersion in Tobin's q across firms is counter-cyclical or acyclical. These facts run counter to the Schumpeterian view of capital reallocation embodied in modern theories of business cycles. To resolve the puzzles, we model an economy with search...

We build a directed search model of the labor market in which workers' transitions between unemployment, employment, and across employers are endogenous. We prove the existence, uniqueness and efficiency of a recursive equilibrium with the property that the distribution of workers across...