This paper derives a formula for the optimal forecast of a discounted sum of future values of a random variable. This problem reflects a preference for robustness in the presence of (unstructured) model uncertainty. The paper shows that revisions of a robust forecast are more sensitive to new...

We develop an overlapping generations model of the real estate market in which search frictions and a debt overhang combine to generate price persistence and illiquidity. Illiquidity stems from heterogeneity in agent real estate valuations. The variance of agent valuations determines how quickly...

We construct a 2 sector growth model with sector specific technology shocks where one sector produces intermediate goods while the other produces final goods. Theoretical restrictions from this model are used to compute the time series for sector-specific TFPs based solely on factor prices and...

This paper analyzes how a model where goods are endogenously nontraded can help explain the relationship between the current account and real exchange rate fluctuations. We formulate a small open economy two-period model in which goods switch endogenously between being traded or nontraded. The...

This paper reexamines wage and price dynamics in response to permanent shocks to productivity. We estimate a micro-founded dynamic general equilibrium (DGE) model of the U.S. economy with sticky wages and sticky prices using impulse responses to technology and monetary policy shocks. We utilize...

Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higher price levels than poorer countries, a stylized fact usually attributed to the “Balassa-Samuelson” effect. But looking back fifty years, or more, this effect virtually disappears from the data. What is...

Whether prices are pro- or counter-cyclical represents a major difference in the predictions of models that focus on aggregate demand shocks as the primary source of business cycle fluctuations, versus those that emphasize shocks to aggregate supply. Earlier studies have interpreted their...

Recently, Greenwood, Hercowitz and Krusell (GHK) have identified the relative price of (new) capital with capital-specific technological progress. In a two-sector growth model, however, the relative price of capital equals the ratio of the productivity processes in the two sectors. Restrictions...

The Calvo pricing model that lies at the heart of many New Keynesian business cycle models has been roundly criticized for being inconsistent both with time series data on inflation and with micro-data on the frequency of price changes. In this paper we show that a modified version of the Gali...