We study discretionary equilibria in dynamic linear-quadratic rational expectations models. In contrast to the assumptions that pervade this literature we show that these models do have multiple equilibria in some situations. We demonstrate the existence of multiple discretionary equilibria by...

This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of...

There is growing evidence that the cross section of the growth rate of firms is subject to systematic distortions at business cycle frequencies. In this paper we briefly review this evidence and then offer a theoretical model that incorporates nonlinearities in the way in which firms respond to...

Risky investment projects make the coordination among small, uninformed investors hard to achieve, and generate inefficient low levels of investment. Several authors have pointed out the benefits to an economy from multiple avenues of financial intermediation. This paper explains endogenously...

We use a Markov regime-switching heteroskedasticity model in order to examine the association between inflation and inflation uncertainty in four European countries over the last forty years. This approach allows for regime shifts in both the mean and variance of inflation in order to assess the...