This paper is motivated by the recent financial crisis and addresses whether a “too low for too long” interest rate policy may generate a boom-bust cycle. We suggest a model in which a microfounded shadow banking sector is included in an otherwise state-of-the-art DSGE model. When faced with...

This paper introduces lumpy micro-level investment into a sticky information general equilibrium model. Lumpy investment arises because of inattentiveness in capital investment decisions instead of the more popular assumption of non-convex adjustment costs. Sticky information is the only source...

In this paper, I introduce lumpy micro-level capital adjustment into a sticky information general equilibrium model. Lumpy adjustment arises because of inattentiveness in capital investment decisions instead of the more common assumption of non-convex adjustment costs. The model features...

Motivated by the U.S. events of the 2000s, we address whether a too low for too long interest rate policy may generate a boom-bust cycle. We simulate anticipated and unanticipated monetary policies in state-of-the-art DSGE models and in a model with bond financing via a shadow banking system, in...

Optimal monetary policy studies typically rely on a single structural model and identification of model-specific rules that minimize the unconditional volatilities of inflation and real activity. In our proposed approach, we take a large set of structural models and look for the model-robust...

We show that the out-of-sample forecast of the equity risk premium can be significantly improved by taking into account the frequency-domain relationship between the equity risk premium and several potential predictors. We consider fifteen predictors from the existing literature, for the...

We revisit the empirical performance of the Q theory of investment, explicitly taking into account the frequency dependence of investment, Tobin's Q, and cash flow. The time series are decomposed into orthogonal components of different frequencies using wavelet multiresolution analysis. We find...

We generalize the Ferreira and Santa-Clara (2011) sum-of-the-parts method for forecasting stock market returns. Rather than summing the parts of stock returns, we suggest summing some of the frequency-decomposed parts. The proposed method signi cantly improves upon the original sum-of-the-parts...

Despite an increase in research – motivated by the global financial crisis of 2007-08 – empirical studies on the financial cycle are rare compared to those on the business cycle. This paper adds some new evidence to this scarce literature by using a different empirical methodology –...