Showing 1 - 10 of 46
In this paper we provide a framework to study the aggregate dynamic behavior of an economy where individual units follow (S,s) policies. We characterize structural and stochastic heterogeneities that ensure convergence of the economy's aggregate to that of its frictionless counterpart, determine...
Persistent link: https://www.econbiz.de/10013239966
We propose a framework for understanding recurrent historical episodes of vigorous economic expansion accompanied by extreme asset valuations, as exhibited by the U.S. in the 1990s. We interpret this phenomenon as a high-valuation equilibrium with a low effective cost of capital based on...
Persistent link: https://www.econbiz.de/10012762624
In this paper I argue that the current core of macroeconomics--by which I mainly mean the so-called dynamic stochastic general equilibrium approach--has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the...
Persistent link: https://www.econbiz.de/10013137318
The sensitivity of U.S. aggregate investment to shocks is procyclical: the initial response increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond...
Persistent link: https://www.econbiz.de/10012761267
We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming environment. Acute safe asset scarcity forces the economy into a “safety trap” recession. In the open economy, safe asset scarcity spreads from one country to the other via capital...
Persistent link: https://www.econbiz.de/10012997884
We develop a model of gross capital flows and analyze their role in global financial stability. In our model, consistent with the data, when a country experiences asset fire sales, foreign investments exit (fickleness) while domestic investments abroad return home (retrenchment). When countries...
Persistent link: https://www.econbiz.de/10012980666
The standard version of q theory, in which investment is positively related to marginal q, breaks down in the presence … investment and marginal q can be either positive or negative. Given certain homogeneity assumptions, a version of the theory …
Persistent link: https://www.econbiz.de/10013218814
The estimated persistence of macro aggregates involving lumpy microeconomic adjustment is biased downward when inferred from VAR estimates. The extent of this “missing persistence bias” decreases with the level of aggregation, yet convergence is very slow. Paradoxically, while idiosyncratic...
Persistent link: https://www.econbiz.de/10013219167
Emerging economies are prone to crises triggered by external shocks. During these crises, should the central bank stabilize the currency or domestic interest rates? If the choice is outside the central bank's control, as in a currency board, are there good policy substitutes? We argue that these...
Persistent link: https://www.econbiz.de/10013219686
Emerging economies are exposed to severe and sudden shortages of international financial resources. Yet domestic agents seem not to undertake enough precautions against these sudden stops. Following our previous work, we highlight in this paper the central role played by limited domestic...
Persistent link: https://www.econbiz.de/10013219968