This paper adds a highly-leveraged financial sector to the Ramsey model of economic growth and shows that this causes the economy to behave in a highly volatile manner: doing this strongly augments the macroeconomic effects of aggregate productivity shocks. Our model is built on the financial...

Why is GDP growth so much more volatile in poor countries than in rich ones? We identify four possible reasons: (i) poor countries specialize in more volatile sectors; (ii) poor countries specialize in fewer sectors; (iii) poor countries experience more frequent and more severe aggregate shocks...

This Paper examines the changing relationships between the G7 countries through VAR models for the quarterly growth rates, estimated both over sub-periods and using a rolling data window. Six trivariate models are estimated, all of which include the US and a European (E15) aggregate. In relative...

I revisit the relationship between growth and volatility in two different disaggregated datasets. I confirm that growth and volatility are negatively related across countries, but show that the relation reverses itself across sectors. This phenomenon, sometimes called the ‘Simpson’s...

This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov...

This paper reexamines U.S. business cycle volatility since 1867. We employ dynamic factor analysis as an alternative to reconstructed national accounts. We find a remarkable volatility increase across World War I, which is reversed after World War II. While we can generate evidence of postwar...

This paper explores the link between the leverage of the US financial sector, of households and of non-financial businesses, and real activity. We document that leverage is negatively correlated with the future growth of real activity, and positively linked to the conditional volatility of...

The collapse of the global economy in 2008, following the outbreak of the financial crisis, and the ensuing economic developments of the so-called Great Recession (GR) led many economists to suggest that the Great Moderation (GM) had, indeed, come to an end. This paper offers evidence that the...

Survey respondents strongly disagree about return risks and, increasingly, macroeconomic uncertainty. This may have contributed to higher asset prices through increased use of collateralisation, which allows risk-neutral investors to realise perceived gains from trade. Investors with lower risk...

To generate big responses of unemployment to productivity changes, researchers have reconfigured matching models in various ways: by elevating the utility of leisure, by making wages sticky, by assuming alternating-offer wage bargaining, by introducing costly acquisition of credit, or by...