This paper formally compares the fit of various versions of the incomplete markets model with aggregate uncertainty, relying on a simple Bayesian empirical framework. The models differ in the degree of households' heterogeneity, with a focus on the role of preferences. For every specification,...

We develop a general equilibrium model to study the historical contribution of TFP news to the U.S. business cycle. Hiring frictions provide incentives for firms to start hiring ahead of an anticipated improvement in technology. For plausibly calibrated hiring costs, employment gradually rises...

Which are the main frictions and driving forces of business cycle dynamics in a small open economy? To answer this question we extend what is becoming the standard new Keynesian model in three dimensions. First, we incorporate frictions in the financing of the capital stock. Second, we model...

We present the estimated large-scale three-region DSGE model GEAR picturing Germany, the Euro Area and the Rest of the world. Compared to existing models of this type, GEAR incorporates a comprehensive fiscal block, involuntary unemployment and a complex international structure. We use the model...

In this paper we investigate the labor market dynamics in a matching model where fluctuations are driven by movements in the discount factor. A comparison with the standard productivity shock is provided. Movements in the discount factor can be used as a proxy for variations in financial risks,...