Motivated by the apparent failure of the credit multiplier mechanism (CM) to deliver amplification in DSGE models, we re-examine its role in business cycles to address the question: is something wrong with the CM? Our answer is no. In coming to this answer we construct a model with reproducible...

Barsky and Sims (2012, AER) demonstrated, via indirect inference, that confidence innovations can be viewed as noisy signals about medium-term economic growth. They highlighted that the connection between confidence and subsequent activity, such as consumption and output, is primarily driven by...

U.S. households' debt skyrocketed between 2000 and 2007, but has since been falling. This leveraging and deleveraging cycle cannot be accounted for by the liberalization and subsequent tightening of mortgage credit standards that occurred during the period. We base this conclusion on a...

This chapter reviews empirical estimates of differential income and consumption growth across individuals during recessions. Most existing studies examine the variation in income and consumption growth across individuals by sorting on ex ante or contemporaneous income or consumption levels. We...

This paper analyzes economic fluctuations in an overlapping generations economy with productive capital in which random shocks in aggregate productivity are present. Under specific assumptions we obtain an explicit solution of the model. Applying random dynamical systems theory, we can prove...

We use CEX repeated cross-section data on consumption and income, to evaluate the nature of increased income inequality in the 1980s and 90s. We decompose unexpected changes in family income into transitory and permanent, and idiosyncratic and aggregate components, and estimate the contribution...

In this chapter, we review and discuss the large body of research that has developed over the past 10-plus years that explores the interconnection of macroeconomics, finance, and housing. We focus on three major topics—housing and the business cycle, housing and portfolio choice, and housing...

When the financial positions of pension funds worsen, regulations prescribe that pension funds reduce the gap between their assets (invested contributions) and their liabilities (accumulated pension promises). This paper quantifies the business cycle effects and distributional implications of...

We document the cyclical properties of unsecured consumer credit (procyclical and volatile) and of consumer bankruptcies (countercyclical and very volatile). Using a growth model with household heterogeneity in earnings and assets with access to unsecured credit (because of bankruptcy costs) and...

We explore the dynamics of demand for n designs of a good when agents have preferences for (anti-)conformity. Agents differ in their social status and each agent seeks to imitate those of higher status and to distinguish herself from those of lower status, relative to her own status. In each...