After liberalizing international transactions of financial assets, many countries experience large swings in asset prices, capital flows, and aggregate production. This paper studies how the adjustment to capital account liberalization depends upon the degree of development of a domestic...

In this paper we present a simple, theory-based measure of the variations in aggregate economic efficiency associated with business fluctuations. We decompose this indicator, which we refer to as “the gap”, into two constituent parts: a price markup and a wage markup, and show that the...

We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The frame- work shares the emphasis of the recent “new shock” literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing...

We construct a measure of Euro area cyclical efficiency, following the approach developed in Galí, Gertler and López-Salido (2002). Our measure –which we call "the gap"– corresponds to the inverse of price over social marginal cost. Here we present a time series of this gap for the Euro...

In this paper we present a simple theory-based measure of the variations in aggregate economic efficiency: the gap between the marginal product of labor and the household’s consumption/leisure tradeoff. We show that this indicator corresponds to the inverse of the markup of price over social...