Based on a sample of 56 countries, we find that while fiscal policy in the G-7 countries appears to be broadly consistent with Barro's tax smoothing proposition, in developing countries government spending and taxes are highly procyclical (i.e., government spending rises and taxes fall during...

Based on a sample of 104 countries, we document four key stylized facts regarding the interaction between capital flows, fiscal policy, and monetary policy. First, net capital inflows are procyclical (i.e., external borrowing increases in good times and falls in bad times) in most OECD and...

Because inputs are scarce, marginal cost should be an increasing function of output. Without changes in this real marginal cost schedule, aggregate output can vary if and only if the markup of price over marginal cost varies. In this review, we discuss the extent to which observed fluctuations...

This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between...

The paper presents an intertemporal general equilibrium model with rationing in the product market, in which stationary sunspot equilibria are shown to exist, indicating the possibility of fluctuations in economic activity simply due to self-fulfilling variations in economic agents'...

Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) around two thirds of...