This paper studies the macroeconomic implications of firms' investment composition choices in the presence of credit constraints. Following a negative and persistent aggregate productivity shock, firms shift into short-term investments because they produce more pledgeable output and because they...

We analyze recent contributions to growth theory based on the model of expanding variety of Romer (1990). In the first part, we present different versions of the benchmark linear model with imperfect competition. These include the “labequipment” model, labor-for-intermediates” and...

This paper presents a new framework for studying irreversible (dis)investment when a market follows a random number of random-length cycles (such as a high-tech product market). It is assumed that a firm facing such market evolution is always unsure about whether the current cycle is the last...

There are two fundamental puzzles about trade credit: why does it appear to be so expensive,and why do input suppliers engage in the business of lending money? This paper addresses and answers both questions analysing the interaction between the financial and the industrial aspects of the...

In this paper I present a model in which production requires two types of labor inputs: regular productive tasks and organizational capital, which is accumulated by workers performing organizational tasks. By allocating more workers from organizational to productive tasks, firms can temporarily...

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how...

We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits. If the intertemporal elasticity of substitution of labor is greater than one, there are two steady states, one determinate and the other indeterminate. If the...

We examine the role of expectations in the Great Moderation episode. We derive theoretical restrictions in a New-Keynesian model and test them using measures of expectations obtained from survey data, the Greenbook and bond markets. Expectations explain the dynamics of inflation and of interest...

We live in a new world economy characterized by financial globalization and historically low interest rates. This environment is conducive to countries experiencing credit bubbles that have large macroeconomic effects at home and are quickly propagated abroad. In previous work, we built on the...

We study a dynamic economy where credit is limited by insufficient collateral and, as a result, investment and output are too low. In this environment, changes in investor sentiment or market expectations can give rise to credit bubbles, that is, expansions in credit that are backed not by...