This paper examines a mechanism of liquidity-preference fluctuations caused by people's learning behavior. % about the frequency of a liquidity shock. When observing a financial shock, they rationally update their belief so that the subjective probability of encountering it again is higher,...

The New Keynesian model with rational expectations unrealistically predicts that unanticipated credible changes in the inflation target lead to an immediate jump in the inflation level while the output gap is unaffected. We set up a theoretical model where agents learn the behaviour of the...

We combine two data sets to study price rigidity. The first consists of weekly time series of retail, wholesale, and spot prices for twelve products. These time series contain two exogenous cost shocks. We find that prices exhibit more rigidity in response to the second shock than the first. The...

We study the implementation of constrained-efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function. We argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding. This holds true even in...

In this paper, we examine the incentives for central bank activism and caution in a two-country open-economy model with uncertainty and learning. We find that the presence of a strategic interaction between the home and foreign central banks creates an additional motivation for caution in...

The cyclical behavior of hours worked, wages, and consumption does not conform with the prediction of the representative agent with standard preferences. The residual in the intra-temporal first-order condition for commodity consumption and leisure is often viewed as a failure of labor-market...

This paper suggests that skill accumulation through past work experience, or ``learning-by-doing'' (LBD), can provide an important propagation mechanism in a dynamic stochastic general equilibrium model, as the current labor supply affects future productivity. Our econometric analysis uses a...

The “neoclassical synthesis” sticky price model exhibits strange behavior when augmented with markets for durable goods with flexible prices. While in the data the output of durable goods responds strongly and positively to a loosening of monetary policy, in dynamic general equilibrium...

The introduction of a common monetary policy in eleven European countries increased the need for leading indicators for that area. A reliable leading indicator should possess the following properties: (1) The movements in the indicator series should resemble those in the business cycle reference...

Regarding the trade-off between the depth and the duration of recessions, there exists a mounting empirical evidence of the idiosyncratic and non-synchronized behavior of the business cycle over time within and across countries. In this paper, I propose a stochastic dynamic general equilibrium...