We examine whether the news shocks, as explored in Beaudry and Portier(2004), can be a major source of aggregate fluctuations. For this purpose, we extend a standard dynamic stochastic general equilibrium model of Christiano, Eichenbaum, and Evans (2005), and Smets and Wouters (2003, 2007) by...

This paper examines how and to what extent parameter estimates can be biased in a dynamic stochastic general equilibrium (DSGE) model that omits the zero lower bound (ZLB) constraint on the nominal interest rate. Our Monte Carlo experiments using a standard sticky-price DSGE model show that no...

This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has non predictive power, buy or sell signals based on the difference...

Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot...

We show that deviations from long-run stability of product prices are optimal in the presence of endogenous producer entry and product variety in a sticky-price model with monopolistic competition in which price stability would be optimal in the absence of entry. Specifically, a long-run...