Investor sentiment proved to be an important factor during the recent financial and current euro crises. At the same time many existing general equilibrium models do not account for agents' expectations, market volatility, or over-pessimism of investors' forecasts. In this paper we incorporate...

Is monetary policy less effective at stimulating investment during periods of elevated volatility (when all firms experience an increase in the variance of their productivity shocks) than during normal times? In this paper, I argue that elevated volatility leads to a decrease in extensive margin...

We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for...

We use disaggregated data on the components of private fixed investment (PFI) to estimate industry-level responses of real investment and capital prices to unanticipated monetary policy. The response functions derive from a restricted large-scale VAR estimated over 1959-2007. Our results point...

We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most significant change in capital expenditure – even after conditioning on size, asset growth, Tobin's Q,...

This paper argues that the impact of monetary policy shocks can interact with the financial environment, in particular with financial uncertainty, making monetary policy's effectiveness state dependent. To that end, we implement a smooth transition VAR model to examine monetary policy shocks, in...

This paper investigates quantitative significance of liquidity constraints for asset prices and monetary policy in a monetary economy version of Kiyotaki and Moore (2005). Motivated by the lack of commitment in the intertemporal asset trade, the model economy features limited resalability of...

The turn of century long period of sustained growth with low and stable inflation let the economic profession and the public opinion to think that the right theoretical foundation for macroeconomic policy had been found. However the Great Crisis of 2008 indicates a spectacular failure of this...

This paper evaluates the effect of a change in the quantity of money on relative prices in the U.S. economy based on quarterly time-series for the period of 1959 to 2013. We also estimate the implication of a change in relative prices on the rate of inflation and macroeconomic variables. The...

Empirical evidence demonstrates that credit standards, including lending margins and collateral requirements, move in a countercyclical direction. In this study, we construct a small open economy model with financial frictions to generate the countercyclical movement in credit standards. Our...