We characterize the degree of microeconomic inflexibility in several Latin American economies and find that Brazil, Chile and Colombia are more flexible than Mexico and Venezuela. The difference in flexibility among these economies is mainly explained by the behavior of large establishments,...

Cooper and Willis (2003) is the latest in a sequence of criticisms of our methodology for estimating aggregate nonlinearities when microeconomic adjustment is lumpy. Their case is based on “reproducing” our main findings using artificial data generated by a model where microeconomic agents...

Microeconomic flexibility, by facilitating the process of creative-destruction, is at the core of economic growth in modern market economies. The main reason for why this process is not infinitely fast is the presence of adjustment costs, some of them technological, others institutional. Chief...

What is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks? The answer to this question ranges from a one-to-one link (Calvo, 1983) to no connection whatsoever (Caplin and Spulber, 1987). The purpose of this paper is to...

In most instances, the dynamic response of monetary and other policies to shocks is infrequent and lumpy. The same holds for the microeconomic response of some of the most important economic variables, such as investment, labor demand, and prices. We show that the standard practice of estimating...

Economics

Economics

One of the main global economic concerns before the financial crisis was the presence of large“global imbalances,” which refer to the massive and persistent current account deficitsexperienced by the U.S. and financed by the periphery. This concern was intellectuallygrounded on the...

The recent financial crisis has damaged the reputation of macroeconomics, largely for its inability to predict the impending financial and economic crisis. To be honest, this inability to predict does not concern me much. It is almost tautological that severe crises are essentially...

The United States is currently engulfed in the most severe financial crisis since the GreatDepression. The crisis was triggered by thecrash in the real estate “bubble” and amplifiedby the extreme concentration of risk in a highlyleveraged financial sector.Conventional wisdom is that both the...