We explore the business cycle implications of expectation shocks and of two well-known psychological biases, optimismand overconfidence. The expectations of optimistic agents are biased toward good outcomes, whereas overconfident agentsoverestimate the precision of the signals that they receive....

We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald, and Kimball (1999). We conclude that hours worked rise after such a shock. (JEL: E24, E32, O3) Copyright (c) 2004 The European Economic Association.

Market participants routinely take advantage of the failure of uncovered interest rate parity to speculate in currency markets. Perhaps the most widely used currency speculation strategy is the carry trade. In this article we take the perspective of an individual currency trader and document the...

We show that the standard procedure for estimating long-run identified vector autoregressions uses a particular estimator of the zero-frequency spectral density matrix of the data. We develop alternatives to the standard procedure and evaluate the properties of these alternative procedures using...