This paper presents a theory of rigidity, or more properly inertia, in the responses of economic variables to changing environments. The theory rests on three fundamental assumptions: (1) that firms are risk averse, (2) that firms are uncertain of the impacts of changing decision variables and...

This paper describes how imperfect information in both capital and labor markets can, in a context of maximizing firms and perfectly flexible prices and wages, give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles.

We characterize the evolution over time of a network of credit relations among financial agents as a system of coupled stochastic processes. Each process describes the dynamics of individual financial robustness, while the coupling results from a network of liabilities among agents. The average...

We explore the properties of a credit network characterized by inside credit - i.e. credit relationships connecting downstream (D) and upstream (U) firms - and outside credit - i.e. credit relationships connecting firms and banks. The structure of the network changes over time due to the...

Much of the new theory of macro-economics that has been built upon micro-economic models of imperfect information leads to conclusions which are surprisingly close in spirit to Keynes' original analysis. This paper summarizes the macro-economic implications of information-based models of...

This paper examines the impact of financial market imperfections on long-term productivity growth. It focuses on failures in markets for the sale of equity securities and hence on the failure of markets which help firms diversify the risks of real investment. The paper examines separately...

This paper develops a simple model of macroeconomic behavior which incorporates the impact of financial market "imperfections," such as those generated by asymmetric information in financial markets. These information asymmetries may lead to breakdowns in markets, like that for equity, in which...

In this paper we propose an Open Economy Financial Accelerator model along the lines of Greenwald-Stiglitz (1993) close in spirit but different in many respects from the one proposed by Greenwald (1998.) The first goal of the paper is to provide a taxonomy of the effects of a devaluation in this...

This paper describes the role that informational imperfections in capital markets are likely to play in business cycles. It then developes a simple illustrative model of the impact of adverse selection in the equity market and the way in which this may lead to large fluctuations in the effective...

This paper summarizes recent developments in the theory of the firm that have arisen in examining the implications of imperfect information. It shows that a wide range of these models have similar implications for the likely reaction of firms to external environmental and policy changes. Two...