We analyse the implications for the dynamics of capital accumulation of market power and endogenous demand elasticities, in an environment in which the latter are affected by the number of competitors in each industry. In equilibrium the interest rate increases as capital accumulates, even...

We develop a simple growth model with imperfect competition in which demand conditions can affect the dynamics of capital accumulation, hindering or enhancing growth. In our model the elasticity of the demand schedule faced by a typical firm depends on the aggregate savings rate. The latter...

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of...

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how...

We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three...

We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of...

We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of...

We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity vanished, (ii) the relative volatility of employment rose, and (iii) the relative (and absolute) volatility of the real wage rose. We propose an explanation for all three changes that is...

An analysis of the performance of GDP, employment and other labor market variables following the troughs in postwar U.S. business cycles points to much slower recoveries in the three most recent episodes, but does not reveal any significant change over time in the relation between GDP and...

We study the gains from increased wage flexibility and their dependence on exchange rate policy, using a small open economy model with staggered price and wage setting. Two results stand out: (i) the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize...