In France, firms that have 50 employees or more face substantially more regulation than firms that have less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as the combination of a sunk cost that...

Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production...

The authors’ findings support the view that weather has a significant, but short-lived, effect on economic activity. Except for a few industries, which are affected importantly (such as utilities, construction, hospitality and to a lesser extent retail), the effect is not very big, so that...

I derive a production-based asset pricing formula to infer aggregate stock market returns from macroeconomic time series when the technology is putty-clay. Capital heterogeneity leads to variation in the aggregate stock market value through a new compositional effect. The asset pricing formula,...

In a recent article, Barro (2006) revives the Rietz explanation of the equity premium. Rietz (1988) showed that infrequent, large drops in consumption make the theoretical equity premium large. Barro shows empirically that in the XXth century, disasters are frequent and large enough, and stock...

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the...

We develop a parsimonious New Keynesian macro-finance model with downward nominal rigidities to understand secular and cyclical movements in Treasury bond premia. Downward nominal rigidities create state-dependence in output and inflation dynamics: a higher level of inflation makes prices more...

Recent work in international finance suggests that the forward premium puzzle can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle...

Corporate profits are volatile and highly procyclical in the aggregate, but there is substantial heterogeneity across firms in the extent of this procyclicality: I document that firms with lower productivity or higher book-to-market have more procyclical profits. A simple static profit...