The research led by Gali (AER 1999) and Basu, Fernald, and Kimball (AER 2006) raises two important questions regarding the validity of the RBC theory: (i) How important are technology shocks in explaining the business cycle? (ii) Do impulse responses to technology shocks found in the data reject...

We document that persistent and lagged inflation (with respect to output) is a world-wide phenomenon in that these short-run inflation dynamics are highly synchronized across countries. In particular, the average cross-country correlation of inflation is significantly and systematically stronger...

This paper provides new empirical evidence on and theoretical support for the close link between oil prices and aggregate macroeconomic performence in the 1970s. Although this link has been well documented in the empirical literature and is further confirmed in this paper, standard economic...

The causal relationship between growth and fixed capital formation is reexamined. Our findings are in sharp contrast with the earlier findings by Blomstrom et al. (1996) that capital formation does not contribute to economic growth. However, our findings also reject the conventional wisdom...

Firm-level investment is lumpy and volatile but aggregate investment is much smoother and highly serially correlated. These different patterns of investment behavior have been viewed as indicating convex adjustment costs at the aggregate level but non-convex adjustment costs at the firm level....

This paper develops an analytically tractable general equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model's predictions are broadly consistent with the US business cycle and key features of inventory behavior. It is also shown that technological...

This paper provides a dynamic optimization model of durable goods inventories to study the interactions between investment demand and the production of capital goods. There are three major findings: first, capital suppliers¡¯ inventory behavior makes investment demand more volatile in...

Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between elastic credit supply (due to leveraged borrowing) and persistent credit demand (due to...

We estimate a DSGE model with (S,s) inventory policies. We find that (i) taking inventories into account can significantly improve the empirical fit of DSGE models in matching the standard business-cycle moments (in addition to explaining inventory fluctuations); (ii) (S,s) inventory policies...

Using a rational expectations model of profit maximizing firms facing demand uncertainty, this paper derives a closed-form relationship between the optimal volume of labor hoarding and other important economic variables such as profit, expected demand, interest rate, inventory level, output...