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...

We develop a model of state-dependent pricing that we can log-linearize and compare to the standard Calvo model. In one extreme case, money is neutral with state-dependent pricing even though the probability of price adjustment is constant as in the Calvo model. We use this example to illustrate...

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 develop and estimate a structural model of inflation that allows for a fraction of firms that use a backward looking rule to set prices. The model nests the purely forward looking New Keynesian Phillips curve as a particular case. We use measures of marginal cost as the relevant determinant...