This paper considers Beveridge-Nelson decomposition in a context where the permanent and transitory components both follow a Markov switching process. Our approach insorporates Markov switching into a single source of error state-space framework, allowing business cycle asymmetries and regime...

Macroeconometric and fi?nancial researchers often use secondary or constructed binary random variables that differ in terms of their sta- tistical properties from the primary random variables used in micro- econometric studies. One important difference between primary and secondary binary...

To match the NBER business cycle features it is necessary to employ Gen- eralised dynamic categorical (GDC) models that impose certain phase re- strictions and permit multiple indexes. Theory suggests additional shape re- strictions in the form of monotonicity and boundedness of certain...

We document how firm-specific volatility in sales, earnings and employment growth evolved year by year in Japan. Our volatility measure also indicates the evolution of firm turnover. We find that patterns in firm-specific volatility have changed when macroeconomic circumstances have. Firm...

This paper amends the New Keynesian Phillips curve model to include inflation volatility and tests the determinants of such volatility for India. It provides results on the determinants of inflation volatility and expected inflation volatility for OLS and ARDL (1,1) models and for change in...

The asset pricing model with external habit formation predicts that the equity premium depends on consumption changes relative to the habit level, implying a response that varies over the business cycle. We test this implication using a VAR model of the U.S. postwar economy whose time-varying...

Various papers have identified shocks to investment as major drivers of output, investment, hours, and interest rates. These investment shocks have been linked to financial frictions because financial markets are instrumental in transforming consumption goods into installed capital. However, the...

We investigate a new source of economic stickiness: namely, staggered loan interest rate contracts under monopolistic competition. The paper introduces this mechanism into a standard New Keynesian model. Simulations show that a response to a financial shock is greatly amplified by the staggered...

This paper develops a dynamic general equilibrium model to assess the cost of financial intermediation in a small open economy with a floating exchange rate and sticky prices. Costly financial intermediation raises the cost of capital and lowers the long-run level of steady state output, capital...

Understanding the transmission channels of shocks is critical for successful policy response. This paper develops a dynamic general equilibrium model to assess the relative importance of the interest rate, the exchange rate and the credit channels in transmitting shocks in an open economy. The...