By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some...

The theoretical literature on business cycles predicts positive factor inputs responses to productivity shocks. In this work we argue that, once conditional correlations are taken into account, hours worked and investment decline temporarily following a positive technology shock. First, we...

This paper analyzes the behavior of a central bank under strong (quot;Knightianquot;) uncertainty when the short run trade-off between output and inflation is represented by the Sticky Information Phillips Curve proposed by Mankiw and Reis (2002). By solving the robust control problem...

The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a...

The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock...