Differences in labour market institutions and regulations between countries of the monetary union can cause divergent responses even to a common shock. We augment a multi-country model of the euro area with search and matching framework that differs across Ricardian and hand-to-mouth households....

This paper shows that belief‐driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast‐model misspecification can break the link between indeterminacy and sunspots by establishing the existence of...

Unemployment recoveries in the US have been inexorable. Between 1948 and 2019, the annual reduction in the unemployment rate during cyclical recoveries was fairly tightly distributed around 0.1 log points per year. The economy seems to have an irresistible force toward restoring full employment....

This paper empirically verifies that the types of capital adjustment costs serve as an important mechanism in relation to investment decision- making after confirming that the investment dispersion of Korean firms is pro-cyclical and can affect busin ess cycles. Specifically, it is found through...

The objective of this paper is to propose an analytical framework to examine the foundations of the theory of efficient growth. The theory of efficient growth is a newly developed theory based on the principles of the neoclassical framework. It argues that an economy grows efficiently under two...

The subprime loan mortgage crisis has revived scholarly interest in Minsky's financial instability hypothesis. The related mathematical models present two types of Minskian financial structures. We construct macrodynamic models that consider both structures and discuss financial instability and...

We develop a production based asset pricing model with financially constrained firms to explain the observed high equity premium and low risk-free rate volatility. Investment opportunities are scarce and firms face productivity and liquidity shocks. A negative liquidity shock forces firms to...

This paper provides microfoundations to the Salter-Swan policy framework, a graphical apparatus designed to ascertain the exchange-rate and fiscal stance of a policymaker with internal and external economic targets. The environment is an infinite-horizon small open economy producing tradable and...

This introductory paper offers a look into the intellectual and technical progress that led Robert E. Lucas to his seminal paper entitled Expectations and the neutrality of money. It is argued that the neutrality paper applies the capital-theoretic approach of Lucas’s firm microeconomics of...

We study business cycles with cyclical returns to scale. Contrary to tightly parameterized production functions (Cobb-Douglas and Constant Elasticity of Substitution), we empirically identify strong input complementarity that leads to procyclical returns to scale. We therefore propose a flexible...

Recessions are associated with sharp increases in turbulence that reshuffle firms' productivity rankings. To study the business cycle implications of turbulence shocks, we use Compustat data to construct a measure of turbulence based on the (inverse of) Spearman correlations of firms'...

This study offers a model that formalizes some of Marx’s insights about how capital accumulation generates contradictions that may reproduce never-ending cycles of booms and slumps. The model takes the reserve army of labor as a regulator of the distribution of class-power over the business...

The Cobb-Douglas matching function is ubiquitous in search and matching models, even though it imposes a constant matching elasticity that is unlikely to hold empirically. Using a general constant returns to scale matching function, this paper first derives analytical conditions that determine...

An equilibrium model of fluctuations has two components: an elastic labor supply schedule and a source of shifts of the labor demand schedule. In the real business cycle model, shifts of labor demand follow from vibrations in the production function. In the model of this paper, shifts of labor...

This paper analyzes the ability of a general equilibrium efficiency wage model to account for the estimated response of hours worked and of real wages to a fiscal policy shock. Our key finding is that the model cannot do so unless we make the counterfactual assumption that marginal tax rates are...

The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their...

We develop an equilibrium theory of business cycles driven by spikes in risk premiums that depress business demand for capital and labor. Aggregate shocks increase firms’ uninsurable idiosyncratic risk and raise risk premiums. We show that risk shocks can create quantitatively realistic...

We document the cyclical behavior of the post-tax income distribution in the US. The analysis is based on a dataset that is informative for the lower and the upper tail of the post-tax income distribution and that also matches aggregate national income. Most importantly, lower and higher income...

This paper empirically verifies that the types of capital adjustment costs serve as an important mechanism in relation to investment decision-making after confirming that the investment dispersion of Korean firms is pro-cyclical and can affect business cycles. Specifically, it is found through...

In this paper, we discuss business cycles, in a historical, theoretical and methodological review. Fluctuations in economic activity have been observed with considerable regularity since the beginning of the last century, motivating a empirical efforts to, identify, measure, and understand...

We revisit the question of why shifts in aggregate demand drive business cycles. Our theory combines intertemporal substitution in production with rational confusion, or bounded rationality, in consumption and investment. The first element allows aggregate supply to respond to shifts in...

Forecasting of business cycles and description of fluctuations of different variables are of great importance for economic policy and development. We model macroeconomics as system of economic agents. Aggregations of agents’ variables as credits, investment, demand and etc., define...

A simple real model is used to decompose movements of aggregate inventories and output in Japan during 1975 to 1987 to three components, one due to cost shocks, one due to demand shocks, and one due to' shocks from abroad. Cost shocks are estimated to account for about one tenth of the movement...

This paper begins by identifying the distinguishing characteristic of the "real business cycle" (RBC) class of macroeconomic models. It then scruitinizes existing evidence, presented in support of the RBC approach, of three types: calibrated general equilibrium models with no monetary sector,...

This paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle. To this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding. We find that variable...

This paper develops and estimates a fully microfounded equilibrium business cycle model of the US labor market with aggregate productivity shocks. Those microfoundations are consistent with evidence regarding the underlying distribution of firm growth rates across firms [by age and size] and,...