A chief goal of the Pigou cycle literature is to generate a boom in response to news of a future increase in productivity, and a bust if this improvement does not in fact take place. We nd that monetary policy can generate Pigou cycles in a two sector model with durables and non-durables, and...

Based on a two sector dynamic new Keynesian model with sticky prices, this paper makes two contributions to the Pigou cycle literature. First, the paper quantifies the contribution of `news shocks' -- signals of future productivity changes. Maximum likelihood estimates indicate that nondurable...

Several approaches to finding the second-order approximation to a dynamic model have been proposed recently. This paper differs from the existing literature in that it makes use of the Magnus and Neudecker (1999) definition of the Hessian matrix. The key result is a linear system of equations...

Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since the RBC theory suggests a measurement of the return of aggregate capital, not stock market returns. We construct a quarterly time series of the after-tax return to...

An investigation of whether economic theory supports the claim that a technology shock can change the "natural rate of unemployment."

Statistics that measure labor market activity, such as employment and unemployment, are often interpreted in the press and by politicians as measures of economic performance and social well-being. Discussions that focus on cross-country comparisons of unemployment, for example, seem to be based...

An innovation in this paper is to introduce a time-to-build technology for the production of market capital into a model with home production. Our main finding is that the two anomalies that have plagued all household production modelsthe positive correlation between business and household...