An important trend in macroeconomic research in recent years involves the increased use of optimization-based models with nominal rigidities (such as sticky prices) to analyse how monetary policy affects the economy and how optimal policy should be designed. This paper presents a re-formulated...

Recent years have seen a proliferation in research aimed at assessing monetary policy rules using macroeconomic models built from explicit micro-foundations. In many versions of these models, pricing behaviour is described by a ``new-Keynesian Phillips curve,'' which relates inflation to...

Recent years have seen an important trend in macroeconomic research towards analysing business cycles and stabilization policy in the context of models that incorporate both nominal rigidities and optimising agents with rational expectations. The canonical specification for the behaviour of...

In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap...

The existence of durable goods implies that the welfare flow from consumption cannot be directly associated with total consumption expenditures. As a result, tests of standard theories of consumption (such as the Permanent Income Hypothesis, or PIH) typically focus on nondurable goods and...

Lettau and Ludvigson (2001) argue that a log-linearized approximation to an aggregate budget constraint predicts that log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is present in U.S. data, and that the estimated cointegrating...

The slowdown in the US economy in 2008, and in the housing market in particular, has been accom- panied by a sharp fall in house prices and a glut of homes for sale on the market. While the idea that this overhang of dwellings for sale should place downward pressure on house prices is intuitive,...

This paper examines how banks respond to shocks to their equity. If banks react to equity shocks by more than proportionately adjusting liabilities, then this will tend to generate a positive correlation between asset growth and leverage growth. However, we show that in the presence of changes...

The empirical finding that exporting firms are more productive on average than non-exporters has provoked a large theoretical literature based on models such as Melitz (2003), where more productive firms are more likely to overcome costs associated with trade. This paper provides a systematic...

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per...