Under the identification strategy that only innovations to productivity can have a permanent impact on labor productivity, Gali (1999) finds that the contribution of productivity shocks to aggregate fluctuations is negligible. More recently, Fisher (2006) extends Galis's identification to allow...

How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for...

In this paper we examine the effects of two types of information imperfections, robustness (RB) and finite information-processing capacity (called rational inattention or RI), on international consumption correlations in an otherwise standard small open economy model. We show that in the...