This paper develops a stock-flow consistent model that explicitly integrates the role of liquidity preference and perceived uncertainty into the decision-making process of households, firms, and commercial banks. Emphasis is placed on (1) the link between the precautionary motive and the asset...

We provide a continuous-time “risk-centric” representation of the New Keynesian model, which we use to analyze the interactions between asset prices, financial speculation, and macro- economic outcomes when output is determined by aggregate demand. In principle, interest rate policy is...

The notion that business cycles are driven by demand shocks is subtle. I first review some of the conceptual and empirical challenges faced when trying to accommodate this notion in micro-founded, general-equilibrium models. I next review my own research, which sheds new light on the observed...

We estimate the time-varying distribution of aggregate supply (AS) and aggregate demand (AD) shocks defined in the Keynesian tradition. In modeling the time variation in higher order moments, we distinguish between traditional Gaussian uncertainty and "bad" uncertainty, associated with negative...