We propose a new framework to analyse the wage premium behaviour. Building on Acemoglu and Zilibotti (2001), we introduce physical capital and two assumptions: (i) internal costly investment in both capital and R&D; (ii) complementarities between capital goods in production. We find that, for...

This paper assesses the potential procyclical effects of Basel II capital requirements by evaluating to what extent those effects depend on the composition of banks' asset portfolios and on how borrowers' credit risk evolves over the business cycle. By developing a heterogeneous-agent general...

Although central banks often advocate labor market reforms, the latter may lead to higher stabilization costs in the presence of habit persistence in consumption. This is more likely to occur when strong habit persistence is coupled with an inflation-averse central bank. The presence of habit...