We present a model in which temporary shocks can permanently scar the economy's productive capacity. Unemployed workers lose skill and are expensive to retrain, generating multiple steady state unemployment rates. Large temporary shocks push the economy into a liquidity trap, generating...

We create a novel measure of job search effort starting in 1994 by exploiting the overlap between the Current Population Survey and the American Time Use Survey. We examine the cyclical behavior of aggregate job search effort using time series and cross-state variation and find that it is...

The UK experienced an unusually prolonged stagnation in labor productivity in the aftermath of the Great Recession. This paper analyzes the role of sectoral labor misallocation in accounting for this "productivity puzzle". If jobseekers disproportionately search for jobs in sectors where...

This paper reconsiders the cost of business cycles under incomplete markets. Primarily, we focus on the heterogeneity in the cost of business cycles among agents with different skill levels. Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled...

Standard real business cycle models must rely on total factor productivity (TFP) shocks to explain the observed comovement of consumption, investment, and hours worked. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption can generate...

We provide a novel methodology for estimating time-varying weights in linear prediction pools, which we call dynamic pools, and use it to investigate the relative forecasting performance of dynamic stochastic general equilibrium (DSGE) models, with and without financial frictions, for output...

It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession, and that models in which inflation depends on economic slack cannot explain the recent muted behavior of inflation, given the...

This article discusses a more general interpretation of the two-step minimum distance estimation procedure proposed in earlier work by Sbordone. The estimator is again applied to a version of the New Keynesian Phillips curve, in which inflation dynamics are driven by the expected evolution of...

We develop a multi-sector sticky-price DSGE (dynamic stochastic general equilibrium) model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow...

We study the implications of increased price flexibility on aggregate output volatility in a dynamic stochastic general equilibrium (DSGE) model. First, using a simplified version of the model, we show analytically that the results depend on the shocks driving the economy and the systematic...