We document that even though the normal distribution provides a good approximation to GDP fluctuations, it severely underpredicts "macroeconomic tail risks," that is, the frequency of large economic downturns. Using a multi-sector general equilibrium model, we show that the interplay of...

We study how an economy's production structure determines the response of aggregate output and employment to sectoral financial shocks. In our framework, economic production is organized in an input-output network in which firms face financial constraints on their working capital. We show how...

The real effective exchange rate (REER) is one of the most cited statistical constructs in international macroeconomics. With the rising importance of offshoring and outsourcing, the standard measures are increasingly flawed. In addition, because different sectors within a country may...

A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This...

The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law of one price for traded goods. In the data, real and nominal exchange rates are about 6 times as...

We develop a model of the world economy as input-output relationships subject to distortions. We then propose a methodology to solve the identification problem, common to the literature on misallocation in input-output relationships, of separating sectoral TFPs from the sectoral distortions....