This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to financial frictions and idiosyncratic funding liquidity risk in their...

Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in U.S. output and hours. Moreover, like a textbook demand shock, these disturbances drive prices higher in expansions. We reach these conclusions by estimating a dynamic stochastic...

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...

Macroeconomic and sector-specific shocks exert differential effects on investment in disaggregate sectoral data. The response to macroeconomic shocks is hump-shaped, just as in aggregate data. The effects of sectoral innovations decrease monotonically. A calibrated model of investment with...

Canova et al. (2010 and 2012) estimate the dynamic response of labor market variables to technological shocks. They show that investment-specific shocks imply almost exclusively an adjustment along the intensive margin (i.e., hours worked), whereas for neutral shocks the largest share of the...

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 the microeconomic origins of aggregate economic fluctuations inEurope. It examines the relevance of idiosyncratic shocks at the top 100 large firms (thegranular shocks) in explaining aggregate macroeconomic fluctuations. The paper alsoassesses the strength of spillovers...

This paper assesses the differences in how nonfinancial firms respond to high frequency identified monetary policy shocks conditional on various measures of their financial conditions. In line with the effects of monetary policy shocks on real aggregate activity, the most significant disparities...

The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates today forecast future booms in GDP, consumption, investment, and employment. We show that a...

Why did the volatility of U.S. real GDP decline by more than the volatility of final sales with the Great Moderation in the mid-1980s? One explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing. We investigate the role of inventories in the...