In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy--and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single...

Amidst the recent resurgence of inflation, this paper investigates the interplay of corporate profits and income distribution in shaping inflation and aggregate demand within the New Keynesian framework. We derive a novel analytical condition for profits to be procyclical and inflationary....

What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. These dispersions give rise to bets...

This paper studies asymmetry in economic activity over the business cycle. It develops a tractable multisector model of the economy in which complementarity across inputs causes aggregate activity to be left skewed with countercyclical volatility. We then examine implications of the model...

We model automatic trigger policies for unemployment insurance by simulating a weekly panel of individual labor market histories, grouped by state. We reach three conclusions: (i) policies designed to trigger immediately at the onset of a recession result in benefit extensions that occur in less...

We develop a machine-learning solution algorithm to solve for optimal portfolio choice in a detailed and quantitatively-accurate lifecycle model that includes many features of reality modelled only separately in previous work. We use the quantitative model to evaluate the consumption-equivalent...

This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences...

Heterogeneous firm models are ubiquitous in modern macroeconomics. We revisit a central feature of these models: the idiosyncratic shock process faced by firms. Using a large representative firm-level dataset, we document nonparametrically that the common assumption, a Gaussian AR(1) shock...

We study sources and implications of undiversified portfolios in a production-based asset pricing model with financial frictions. Households take concentrated positions in a single firm exposed to idiosyncratic shocks because managerial effort requires equity stakes, and because investors gain...

We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are...