Several papers that make forecasts about the long-term impact of the current financial crisis rely on models in which there is only one type of financial crisis. These models tend to predict that the current crisis will have long lasting negative effects on economic growth. This paper points out...

Fluctuations in firms' revenues reduce firms' viability and are costly from a social welfare point of view even when agents are risk neutral if (i) the decision to continue operating a firm is not efficient at the margin so that fluctuations shorten firms' life expectancy (because they increase...

This paper compares numerical solutions to the model of Krusell and Smith (1998) generated by different numerical algorithms. The algorithms have very similar implications for the correlations between different variables. Larger differences are observed for (i) the unconditional means and...

This Paper compares the responses of bank loan components to a monetary tightening with the responses to negative output shocks. Real estate and consumer loans sharply decrease during a monetary tightening but not after a negative output shock. In contrast, C&I loans (and commercial paper)...

According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse new jobs due to high unemployment benefits. In this paper we...

In this paper, we study the short-run and long-run comovement between prices and real activity in the G7 countries during the postwar period using vector autoregressive systems and frequency-domain filters. We find several patterns that are robust across countries and time periods. Typically,...

This paper develops a model with multiple steady states (low tax and unemployment rate versus high tax and unemployment rate) in which equilibrium selection is not conditioned on a sunspot variable. Instead, large enough shocks initiate unavoidable transitions from one regime to the other. The...

This paper develops a model with multiple steady states (low tax and unemployment rate versus high tax and unemployment rate) in which equilibrium selection is not conditioned on a sunspot variable. Instead, large enough shocks initiate unavoidable transitions from one regime to the other. The...

Changes in the stock of inventories are important for �fluctuations in aggregate output. However, the possibility that firms do not sell all produced goods and inventory accumulation are typically ignored in business cycle models. This paper captures this with a goods-market friction. Using US...

This paper develops a model according to which the costs of business cycles are nontrivial because they reduce the average level of output. The reason is an interaction between job creation costs and an agency problem. The agency problem triggers separations during economic downturns even though...