Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between elastic credit supply (due to leveraged borrowing) and persistent credit demand (due to...

In this paper we characterize and estimate the degree to which liquidity constraints affect real activity. We set up a dynamic model of firm investment and debt in which liquidity constraints enter explicitly into the firm's maximization problem, so that investment depends positively on the...

This paper considers transition dynamics associated with a change in the rate of technological progress, using a general equilibrium framework that incorporates stochastic technology growth trends. The model suggests that these dynamics are associated with protracted transition periods,...

The uncertain and sequential trading (UST) model of inventories behavior with iid shocks predicts that (a) the beginning of period inventories is a sufficient statistic for past variables and (b) an increase in the beginning of period inventories reduces output, employment, hours per employee,...

We examine the role of inventories and capacity utilization (of both capital and labor) for the propagation of business cycle fluctuations. We document a new set of facts regarding the U.S. cyclical regularities of inventories and capacity utilization. First, we find that capital utilization and...

When large, discrete technological improvements require the accumulation of research or infrastructural investment over time, growth paths display cyclical patterns even in the absence of any shocks. Particularly interesting equilibrium features of these cycles include declines in output and...

In a stochastic dynamic general equilibrium framework, we introduce the concept of capacity utilization (as opposed to capital utilization). We consider an economy where monopolistic firms use a putty-clay technology and decide on their productive capacity and technology under under uncertainty....

This paper studies, within a general equilibrium model, the dynamics of Y2K-type shocks: anticipated, permanent losses in output whose magnitude can be lessened by investing resources in advance. The implied dynamics replicate three observed characteristics of those triggered by the Y2K bug: (1)...

This paper develops a dynamic general-equilibrium model of capital adjustments under monopolistic competition. Investments are partially irreversible. The model includes microfoundations for consumption decisions and capital-adjustment strategies. The effects of the model parameters on the...

Despite the widespread belief that technology shocks are the main source of business fluctuations, recent empirical studies indicate that in the absence of financial frictions, a shock to the marginal efficiency of investment is the main source and is closely related to financial conditions for...