This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time-varying wedges that, at least at face value,...

The main substantive finding of the recent structural vector autoregression literature with a differenced specification of hours (DSVAR) is that technology shocks lead to a fall in hours. Researchers have used these results to argue that business cycle models in which technology shocks lead to a...

In the 1970s macroeconomists often disagreed bitterly. Macroeconomists have now largely converged on method, model design, and macroeconomic policy advice. The disagreements that remain all stem from the practical implementation of the methodology. Some macroeconomists think that New Keynesian...

We make two comparisons relevant for the business cycle accounting approach. We show that in theory representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two...

A problem facing the United States and many other countries is how to finance retirement consumption as the number of their workers per retiree falls. The problem with a savings for retirement systems is that there is a shortage of good savings opportunities given the nature of most current tax...

The rate of return on capital of U.S. foreign subsidiaries has been much higher than the rate of return on capital of U.S. affiliates of foreign companies. Over the period 1982-2005, the U.S. Bureau of Economic Analysis (BEA) estimates that the difference in returns, after subtracting taxes,...

We describe a model for calculating the optimal quantity of debt and then apply it to the U.S. economy. The model consists of a large number of infinitely-lived households whose saving behavior is influenced by precautionary saving motives and borrowing constraints. This model incorporates a...

A framework is developed with what we call technology capital. A country is a measure of locations. Absent policy constraints, a firm owning a unit of technology capital can produce the composite output good using the unit of technology capital at as many locations as it chooses. But it can...

A central debate in applied macroeconomics is whether statistical tools that use minimal identifying assumptions are useful for isolating promising models within a broad class. In this paper, I compare three statistical models - a vector autoregressive moving average (VARMA) model, an...