This paper explores the relationship between volatility and welfare. Even though households prefer smooth streams of consumption and leisure, welfare can be increasing in the volatility of an exogenous driving force if factor supply is sufficiently elastic. We provide some analytical results for...

Contrasting sharply with a recent trend in DSGE modeling, we propose a business cycle model where frictions and shocks are chosen with parsimony. The model emphasizes a few labor-market frictions and shocks to monetary policy and technology. The model, estimated from U.S. quarterly postwar data,...

When used to examine disinflation monetary policies, the current workhorse dynamic stochastic general equilibrium model of business cycle fluctuations is able to quantitatively account for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the...

We construct a staggered-price dynamic general equilibrium model with overlapping generations based on uncertain lifetimes. Price stickiness plus lack of Ricardian Equivalence could be expected to make an increase in government debt, with associated changes in lump-sum taxation, effective in...

This paper estimates and compares New-Keynesian DSGE monetary models of the business cycle derived under two different pricing schemes—Calvo (1983) and Rotemberg (1982)—under a positive trend inflation rate. Our empirical findings (i) support trend inflation as an empirically relevant...