This paper builds a simple theoretical model designed to study dollarization. Each period, a benevolent government decides whether or not to dollarize, how much to borrow or lend on an international bond market, and, if dollarization has not occurred, the devaluation rate. In equilibrium,...

We consider an efficiency-wage model with the Calvo-type sticky prices and analyze optimal monetary policy when unemployment insurance is not perfect. With imperfect risk sharing, strict zero-inflation policy is no longer optimal even if the zero-inflation steady-state equilibrium is assumed to...

A defining feature of business cycles is the comovement of inputs at the sectorial level with aggregate activity. Standard models cannot account for this phenomenon. This paper develops and estimates a two-sector dynamic general equilibrium model which can account for this key regularity. My...

This paper finds a solution to some of the discrepancies between the data and what standard complete markets models predict. Specifically, those related to the cross-country correlations of consumption, output and factors of production. I match the data and get positive cross country comovements...

Empirical studies document differences in firms' response to the introduction of various labor market policies. In particular, large and mature firms tend to participate more actively in targeted employment subsidy programs (under which firms receive subsidies for hiring disadvantaged workers)....

Recessions appear to be times when markets function less efficiently. This phenomenon has been the domain of theories that rely on changes in preferences (demand shocks) or constraints on price-setting (sticky prices). In our simple model of decentralized trade with asymmetric information,...

In this paper we propose a model that generates an expansion in response to good news about future total factor productivity (TFP) or investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit...