This paper studies the cyclical properties the standard Mortensen-Pissarides model of labor search and matching embedded in the real business cycles model with capital, risk-averse agents, and lack of private insurance against unemployment risk. The model enables a direct comparison between the...

This paper explores the role that recessions play in resource allocation. The conventional cleansing view, advanced by Schumpeter in 1934, argues that recessions promote more efficient resource allocation by driving out less productive units and freeing up resources for better uses. However,...

The paper recognizes that expectations and the process of their formation are subject to standard decision making and are determined as a part of equilibrium. Accordingly, the paper presents a basic framework in which the form of expectation formation is a choice variable. At any point in time...

This paper examines the role of housing decisions on business cycles fluctuations. We use an overlapping generation model where to acquire a house whose services are an argument in the utility function households have to save for a down payment and make a long term financial committment. Because...

The paper focuses on short run macroeconomic dynamics triggered by demand side shocks. In particular, the paper analyzes, in a general equilibrium framework, the impact of transitory demand side shocks on the behavior of macroeconomic variables and examines the relevance of policy instruments...

Existing studies differ significantly on how much terms of trade shocks contribute to output fluctuations. Empirical studies based on VAR analysis find that terms of trade shocks explain less than 10% of output fluctuations while results from calibrated DSGE models suggest a figure of more than...

This paper revisits the approximate aggregation result of Krusell and Smith (1998). For the stochastic growth model with inelastic labor supply and uninsurable shocks to employment, those authors found that the mean was sufficient to forecast future prices; since prices are known functions of...