What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under which will it have the opposite effects? The authors answer these questions in a general class...

Using “business cycle accounting,” Chari, Kehoe, and McGrattan (2006) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is not...

The "ideal" band-pass filter can be used to isolate the component of a time series that lies within a particular band of frequencies, but applying this filter requires a data set of infinite length. In practice, some sort of approximation is needed. Using projections, the authors derive...