The sensitivity of U.S. aggregate investment to shocks is procyclical: the response upon impact increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond...

Microeconomic lumpiness matters for macroeconomics. According to our DSGE model, it explains roughly 60% of the smoothing in the investment response to aggregate shocks. The remaining 40% is explained by general equilibrium forces. The central role played by micro frictions for aggregate...

The government contracts with a foreign firm to extract a natural resource that requires an upfront investment and which faces price uncertainty. In states where profits are high, there is a likelihood of expropriation,which generates a social cost that increases with the expropriated value. In...

The government contracts with a foreign firm to extract a natural resource that requires an upfront investment and which faces price uncertainty. In states where profits are high, there is a likelihood of expropriation, which generates a social cost that increases with the expropriated value. In...

Americans who are caught evading taxes in one year may be audited for prior years. While the IRS does not disclose its method of selecting tax returns for audit, it is widely believed that a taxpayer's probability of being audited is an increasing function of current evasion. Under these...

This paper argues that, despite important productivity gains, reforms have benefited consumers much less than expected in El Salvador. Antitrust legislation, consumer protection and an adequate regulation of privatized utilities are central ingredients of a successful market economy. Major...

This paper develops simple guidelines for fiscal policy in oil producing countries, focusing on three issues: intergenerational oil distribution, precautionary saving, and adjustment costs. The paper presents a framework to analyze how the revenue generated by an exhaustible source of wealth...