Standard RBC models predict forecastable movements in output, consumption and hours that differ from those obtained from a VAR estimated on US data. The paper investigates whether introducing bounded rationality and learning generates business cycles properties which are empirically plausible....

Gali (1999) used a VAR with productivity and hours worked to argue that technology shocks are negatively correlated with labor and are unimportant for the business cycle. More recently, Beaudry and Portier (2003) studied a VAR in productivity and stock prices. Remarkably, they found that the...

Recessions appear to be times when markets function less efficiently. This phenomenon has been the domain of theories that rely on changes in preferences (demand shocks) or constraints on price-setting (sticky prices). In our simple model of decentralized trade with asymmetric information,...

We present a tractable model of state-dependent pricing and study the incentive for firms to adjust their price in response to shocks. We find a distinct asymmetry in this response. Positive shocks generate greater price flexibility (and smaller output effects) than negative shocks of the same...

Recent empirical work using structural VARs with long-run restrictions assesses whether hours worked per capita rises or falls following a technology improvement. This literature reaches divergent conclusions on the sign of this effect, depending on whether hours worked enters the VAR in...

I provide empirical evidence that badly governed firms respond more to aggregate shocks than do well governed firms. I build a simple model where managers are prone to over-invest and where shareholders are more willing to tolerate such a behavior in good times. The model successfully explains...

This paper attempts to reconcile the high apparent aggregate elasticity of labor supply with small micro estimates. We elaborate on Rogerson's seminal work (1988) and show that his results rely neither on complete markets nor on lotteries, but rather on the indivisibility and the fact that the...

A central debate in applied macroeconomics is whether statistical tools that use minimal identifying assumptions are useful for isolating promising models within a broad class. In this paper, I extend the analysis of Chari, Kehoe, and McGrattan (2005) to compare four statistical...

This paper introduces risk averse workers into a search and matching model and considers the quantitative performance of the model over the business cycle. Wages are determined by long term contracts between workers and firms, with firms providing insurance to workers against variation in labor...

ABSTRACT Business cycle fluctuations are generally associated with positive co-movement between consumption, investment and employment. In this paper we examine when such positive co-movement can arise in market settings as the result of changes in expectations. We show that most of the standard...