We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin’s q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When insiders’ wealth is scarce, they earn a rate of...

The main contribution of this work is to provide a dynamic general equilibrium model of asset allocation, allowing to reconcile economic theory with several puzzling contradictions recently pointed out in the literature: (i) the asset allocation puzzle, (ii) the observed time-variation in...

The main goal of this paper is to measure the welfare costs of business cycles in a production economy in which the representative agent has low risk aversion and - at the same time - the equity premium and the co-movements of aggregate quantities and market returns are comparable to what...

This paper evaluates to what extent the introduction of firing costs can affect the aggregate dynamics of a neoclassical growth model with heterogeneous establishments. Similarly to the previous literature, firing costs are found to have large steady-state effects. However, they have no...

Shifts in the underlying growth rate of productivity, such as occurred in the 1970s and the 1990s, are relatively rare and difficult to identify in real time. In this paper, we document that economists' projections of trend productivity growth adjust gradually to shifts in trend growth. We find...