This paper explores the contention that the dramatic increase in the real price of housing experienced during the 1970s was a cons equence of the interaction of increasing inflation with a nonneutral tax system that discriminates against corporate-held assets. In the c ontext of a dynamic...

The assumption of habit formation in preferences induces two effects on time series of agents' marginal utility of consumption: greater volatility relative to standard time-separable preferences and negative serial correlation. This paper examines whether the second property can help explain the...

The effects of stochastic output shocks on the behavior of exchange rates and nominal price levels is studied within the context of a two-country, cash-in-advance model. The analysis of this model, in contrast to the existing cash-in-advance literature, demonstrates that exchange rates can be...

Restrictions on the time-series properties of one- and two-period nominal interest rates implied by a representative agent cash-in-advance model are derived and tested. Among these are the correlation of the difference between the forward rate and the one-period spot rate with the subsequent...

The real business cycle model dominates business cycle research in the new classical tradition. Typically, real business cycle modelers both offer the bold conjecture that business cycles are equilibrium phenomena driven by technology shocks and also novel strategies for assessing the success of...

In cash-in-advance models, do the timing of markets and the timing of the monetary transfer affect equilibrium money demand? The timing of markets generates different individual money demands; however, under the common assumption that agents are identical, these differences do not affect the...

Following Kocherlakota and Pistaferri (2007a), we consider two market structures: (i) where agents cannot insure at all their consumption against idiosyncratic skill shocks and (ii) where agents can insure their consumption against idiosyncratic skill shocks using the domestic financial markets,...

Is the relative price of investment goods a good proxy for investment frictions? We analyze investment frictions in an open economy, flexible price, two-sector two-country model and show that when the relative price of investment goods is endogenously determined in such a model, the relative...

The subject of this paper is to examine the effect of trade liberalization on the behavior of real emerging stock market prices. The paper first explores the theoretical link between trade liberalization and real stock price behavior by developing an open economy asset pricing model with...