In this paper, we measure the potential welfare gains from counter-cyclical policy in an economy with incomplete markets. In the course of conducting this measurement, we focus on two questions as central to the determination of those potential gains: (1) what is the likely effect of...

When firms must make technology commitments, economic fluctuations impose costs in the form of ex post inefficiency in production technology. We present a general equilibrium model in which, due to the presence of technology commitment, greater volatility of productivity shocks leads to lower...

This paper assembles elements that are essential in forming an integral picture of the way a churning' economy functions and of the disruptions caused by transactional difficulties in labor and financial markets. We couch our analysis in a stochastic equilibrium model anchored with US evidence...

We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement earnings if displaced in mass-layoff events...

This paper investigates the determinants of the "sacrifice ratio" for disinflation: the ratio of the loss in output to the fall in trend inflation. I develop a method for estimating the sacrifice ratio in individual disinflation episodes, and apply it to 65 episodes in moderate-inflation OECD...

While this is typically ignored, the properties of the stochastic process followed by aggregate consumption affect the estimates of the costs of fluctuations. This paper pursues two approaches to modelling aggregate consumption dynamics and to measuring how much society dislikes fluctuations,...

We document a new business cycle fact: the cross-sectional standard deviation of firm-level investment (investment dispersion) is robustly and significantly procyclical. This makes investment dispersion different from the dispersion of productivity and output growth, which is countercyclical....

Financial intermediaries borrow in order to lend. When credit is increasing rapidly, the traditional deposit funding (core liabilities) is supplemented with other funding (non-core liabilities). We explore the hypothesis that monetary aggregates reflect the size of non-core and core liabilities...

Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations...