This paper studies the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous-agent real economy of Kiyotaki and Moore (1997). Money enters in a cash-in-advance constraint and is...

This paper analyzes the effects of anticipated inflation on the resource allocations between production and financial services. We develop a model with heterogeneous workers and two sectors economy. A manufacturing sector producing a final composite good and a financial sector providing monetary...

This paper investigates the dynamics of output, employment and prices in an economy with costs of adjusting labor and prices. In an economy with non convex adjustments costs, firms do not adjust labor and prices continuously to accommodate every shift in demand. Rather, firms adjust employment...

Much research on the dynamics of the aggregate economy concerns the adjustment policy of the microeconomic units. This paper investigates the optimal adjustment policy when there are seasonal fluctuations and fixed adjustment costs. The optimal policy in this case can be described in terms of...

This paper reexamines the relationship between financial market imperfections and economic instability. I present a model in which financial accelerator effects come from adverse selection in credit markets. Unlike other models of the financial accelerator, the model I present has the potential...

Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result hold under more standard assumptions....

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal...

Using a recently introduced nonparametric test, I investigate two important and distinct asymmetries in cross-country quarterly macroeconomic time series. Asymmetries are suggested by many theories (old and new), and those discovered aid in the selection of the appropriate nonlinear time series...

In this paper we reconcile two opposing views about the elasticity of intertemporal substitution in consumption (EIS). Empirical studies using aggregate consumption data typically find that the EIS is close to zero (Hall, 1988). Calibrated models designed to match growth and fluctuations facts...

This paper analyses the relationship between monetary policy and asset prices using a structural rational expectations model that allows for the effect of asset prices on aggregate demand. We assume that asset prices follow a partial adjustment mechanism whereas they are positively affected by...