We establish a set of US stylized facts on prices, quantities and balance sheets, assess the consistency of the current generation of financial DSGE models to these, and provide guidance on the challenges ahead. We mainly find four aspects which future financial friction models should take into...

This paper models uctuations in regional disaggregates as a nonsta- tionary, dynamically evolving distribution. Doing so enables study of the dynamics of aggregate uctuations jointly with those of the rich cross-section of regional disaggregates. For the US, the leading state| regardless of...

The Beveridge curve depicts a negative relationship between unemployed workers and job vacancies, a robust finding across countries. The position of the economy on the curve gives an idea as to the state of the labour market. The modern underlying theory is the search and matching model, with...

I develop a New Keynesian model in which a type of government multiplier doubles when unemployment rises from 5 percent to 8 percent. This multiplier indicates the additional number of workers employed when one worker is hired in the public sector. Graphically, in equilibrium, an upward-sloping...

We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are...

Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the...

This article investigates the effectiveness of monetary policy during a credit crunch by estimating a vector autoregression on the US economy. We present evidence that interest rate cuts have a diminished impact on growth, due to impairment in the relationship between monetary policy and the...