We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information and these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual...

The arrival of new, unfamiliar, investment opportunities is often associated with exuberant movements in asset prices and real economic activity. During these episodes of high uncertainty, financial markets look at the real sector for signals about the profitability of the new investment...

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. Afirm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher...

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...

Latin American economies are exposed to substantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden financial distress. This paper explores ways of overcoming external vulnerability, drawing lessons from a detailed comparison of the response...

This paper identifies Chile`s economic weaknesses and offers policy recommendations for increasing stability. Current problems include weak international financial links, a Central Bank mandate that is ill-designed to deal with terms of trade shocks, a propensity to waste scarce liquidity in the...

This paper surveys Mexico`s economic weaknesses and provides related policy recommendations. Current problems include weak international financial links and external conditions, a recurrent credit crunch and financial underdevelopment problem, with particularly fragile banks, a weak fiscal...

The author identifies sources of volatility in Argentina that include weak international financial links, a recurrent credit crunch and financial underdevelopment problem, a fragile fiscal situation, and a pervasive profit and collateral squeeze mechanism brought about by a rigid labor market...

We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output...