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...

China's over 25% aggregate household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices in China. However, cross-sectional data do not show a significant relationship between housing prices and household saving rates....

In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable...

Post war US data show that consumption growth causes output and investment growth. This is puzzling if technology is the driving force of the business cycle. I ask whether general equilibrium models driven by demand shocks can rationalize the observed causal relations. My conclusion is that...

Labor productivity comoves strongly with output, leads output and employment, and is only weakly correlated with employment at the businesscycle frequency. Procyclical productivity is observed in virtually all countries and industries, and it is observed at both the business-cycle frequency and...

Viewing technology shocks as the primary source of business cycles has resulted in many "puzzles" or counter-factual predictions of general equilibrium theory with respect to international movements of output, consumption, investment, employment, and net exports (Backus, Kehoe and Kydland, JPE...

In this paper, we construct a simple model based on heterogeneity in workers' productivity and homogeneity in their working schedules. This simple model can generate unemployment, even if wages adjust instantaneously, firms are perfectly competitive and can perfectly observe workers'...

This paper compares the behaviour of the effective federal funds rate to 10 US interest rates with maturities ranging from overnight to 10 years. Using spectral estimation methods, we identified idiosyncratic shocks to the funds rate and provided evidence on their impact on other rates at...

A large empirical literature attempts to identify US monetary policy shocks using the effective federal funds rate. This paper compares the time series behavior of the effective federal funds rate to 10 US interest rates with maturities ranging form overnight to 10 years. Using a spectral...