During the Great Moderation, macroeconomic volatility declined while firm markups increased. We document a causal relationship between volatility and markups due to tacit collusion. We exploit the legalisation of interstate banking as an exogenous decrease in volatility. Using an instrumental...

This paper studies the mood fluctuation of a typical consumer with recursive preference and the welfare cost of reduced growth and business cycle. We estimate the welfare cost using discrete recursive function as well as conduct simulation in order to compare our results with other existing...