One of the long-standing puzzles in economics is why wages do not fall sufficiently in recessions so as to avoid increases in unemployment. Put differently, if the competitive market wage declines, why don't employers simply force their employees to accept lower wages as well? As an alternative...

Risk premia in the consumption capital asset pricing model depend on preferences and dividend. We develop a decomposition which allows a separate treatment of both components. We show that preferences alone determine the risk-return tradeoff measured by the Sharpe-ratio. In general, the...

In 2001, the Fed has lowered interest rates in a series of cuts, starting from 6.5 % at the end of 2000 to 2.0 % by early November.This paper asks, whether the Federal Reserve Bank has been surprising the markets, taking as given the conventional view about the effect of monetary policy...

This paper shows that under rather mild conditions, higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth. Government expenditures are financed with labor income taxes as well as capital income taxes. Since capital income accrues to the...

This paper studies how the HP-Filter should be adjusted, when changing the frequency of observations. The usual choices in the literature are to adjust the smoothing parameter by multiplying it with either the square of the observation frequency ratios or simply with the observation frequency....

Often, researchers wish to analyze nonlinear dynamic discrete-time stochastic models. This paper provides a toolkit for solving such models easily, building on log-linearizing the necessary equations characterizing the equilibrium and solving for the recursive equilibrium law of motion with the...

This paper examines the role for tax policies in productivity-shock driven economies with \catching-up-with-the-Joneses" utility functions.The optimal tax policy is shown to a ect the economy countercyclically via procyclical taxes, i.e., \cooling down" the economy with higher taxes when it is...

Newly established firms often try to secure their market position by building up a base of loyal customers. While recessions may not destroy technological leadership, they may be harmful for such firm-customer relationships. Without such customer bases, these firms find themselves more...

The aim of this paper is to construct theoretical models which help to shed light on the recent criticisms of volatile investment flows. We do not make any empirical attempt to establish the existence or gauge the importance of the adverse effects of volatile investment flows nor do we make any...