We find VAR evidence that a rise in US government spending boosts consumption and firm entry. The joint dynamics observed in the data poses a puzzle for business cycle models with endogenous entry (extensive-margin investment). Persistent spending expansions generate entry but crowd out...

Monthly fluctuations in consumer spending are often attributed to the weather. This paper presents a model in which weather affects the productivity of time in nonmarket activities (such as shopping or recreation), and so, via time and budget constraints, may induce substitution in spending...

The paper investigates the role of the real exchange rate in international risk sharing relationships. The real exchange rate introduces a wedge between real marginal utilities of consumption in different countries and this wedge plays a prominent role in a number of new theories of...

Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. We exploit a natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European...

This paper shows that the fiscal multiplier for purchases of durable and investment goods is very small - much smaller than the multiplier for nondurable goods. Standard models predict small durables multipliers because private sector purchases of durable goods are highly intertemporally...

Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of...

We examine a trivariate time series model that is subject to a regime switch, where the shifts are governed by an unobserved, two-state variable that follows a Markov process. The analysis is performed in a Bayesian framework developed by Albert and Chib (1993), where the unobserved states are...

Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of...

Macroeconomic models often invoke consumption "habits" to explain the substantial persistence of macroeconomic consumption growth. But a large literature has found no evidence of habits in the microeconomic datasets that measure the behavior of individual households. We show that the apparent...

Using the Michigan Survey of Consumers, we provide evidence that consumers' beliefs about current and future aggregate durable expenditure predict expected returns. We rationalize this finding through an asset pricing model with recursive preferences over non-durable and durable goods and belief...