Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a...

We study firm-level pricing behavior through the lens of exchange rate pass-through and provide new evidence on how firm-level market shares and price complementarities affect pass-through decisions. Using micro-data from U.S. import prices, we identify two facts: First, exactly the firms that...

In this paper we estimate a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior. In a recent study, Coibion and Gorodnichenko (2011) develop a DSGE model, in which firms follow four different types of price setting schemes: sticky prices, sticky information, rule of...

One of the central questions in recent macroeconomic history is to what extent monetary policy as opposed to oil price shocks contributed to the stagflation of the 1970s. Understanding what went wrong in the 1970s is the key to learning from the past. One explanation explored in Barsky and...

We show that deviations from long-run stability of product prices are optimal in the presence of endogenous producer entry and product variety in a sticky-price model with monopolistic competition in which price stability would be optimal in the absence of entry. Specifically, a long-run...

This paper argues that limited asset market participation is crucial in explaining U.S. macroeconomic performance and monetary policy before the 1980s, and their changes thereafter. We develop an otherwise standard sticky-price DSGE model, whereby at low enough asset market participation,...

Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on stock prices: a 25-basis point increase in the Fed funds rate is associated with an immediate decrease in broad stock indices that may range from 0.5 to 2.3 percent, followed...

This paper presents a theory of the monetary transmission mechanism in a monetary version of Farmer’s (2009) model in which there are multiple equilibrium unemployment rates. The model has two equations in common with the new-Keynesian model; the optimizing IS curve and the policy rule. It...

This paper identifies a new source of business-cycle fluctuations. Namely, a common stochastic trend in neutral and investment-specific productivity. We document that in U.S. postwar quarterly data total factor productivity (TFP) and the relative price of investment are cointegrated. We show...

Inflation is a far from homogeneous phenomenon, a fact often neglected in modelling consumer price inflation. This study, the first of its kind for an emerging market country, investigates gains to inflation forecast accuracy by aggregating weighted forecasts of the sub-component price indices,...