This paper examines the importance of productivity shocks in accounting for salient features of U.S. economic developments during the second half of the 1990s, including the surge in investment spending, the substantial deterioration of the trade balance, and the modest decline in inflation. We...

ABSTRACT Business cycle fluctuations are generally associated with positive co-movement between consumption, investment and employment. In this paper we examine when such positive co-movement can arise in market settings as the result of changes in expectations. We show that most of the standard...

As the millenium draws to an end, the threat posed by the Year 2000 (Y2K) problem is inducing vast private and public spending on its remediation. In this paper, we embed the Y2K problem into a dynamic general equilibrium framework. We model the Y2K problem as an anticipated, permanent loss to...

Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since the RBC theory suggests a measurement of the return of aggregate capital, not stock market returns. We construct a quarterly time series of the after-tax return to...

Standard international real business cycle models are generally unable to replicate the observed comovements of all the main aggregate variables: in particular, they generate low or negative international comovements in output, investment, and labour. I simulated a two-country, two-sector...

This paper presents a model of macroeconomic fluctuations driven by agents competing to secure shares in new markets. The resulting fluctuation resemble a gold rush in the sence that they increase economic activity but may be of limited social gain. We use different techniques to evaluate the...

I reconcile macro- and micro-evidence on price-setting in a search and matching framework. Negotiation of wages substantially increases strategic complementarity of price-setting and thus real price rigidities which reduces implied price durations. This mechanism also dampens wage responses to...

Asset pricing implications for business cycle analysis David Backus, Bryan Routledge, and Stanley Zin Although the stochastic growth model has become the benchmark for business cycle analysis, many of its implications for asset prices and returns are grossly counterfactual. For example, the...