Curiously and in spite of its name, very few business cycle theories actually treat it as a cycle. Mainstream economics, for example, models all macroeconomic fluctuations as a function of exogenous forces. In their view, the economy remains at full employment indefinitely unless impacted by...

In this paper, several flaws of the basic no-capital/labor-only New Keynesian model are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n=1 would ordinary results of the basic...

In this paper, several flaws of the basic no-capital/labor-only New Keynesian model are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n=1 would ordinary results of the basic...

In this paper, several flaws of the basic no-capital/labor-only New Keynesian model are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n=1 would ordinary results of the basic...

In these notes I go over some basic aspects of the analysis of business cycles and aggregate fluctuations from a dynamic stochastic general equilibrium (DSGE) perspective. I build a cannonical DSGE model with a small number of representative agents and a large set of distortionnary wedges...

This paper presents an overview of different models which explain financial crises, with the aim of understanding economic developments during and possibly after the Great Recession. In the first part approaches based on efficient markets and rational expectations hypotheses are analyzed, which...

We show in a simple framework that momentum trading can exist in equilibrium and momentum trading is profitable. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that...

Markov-switching rational expectations (MSRE) models can yield fresh insights beyond what linear rational expectations (LRE) models have done for macroeconomics, as Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009), among others, have noted and predicted. A lack of tractable...

This paper analyzes the necessary and sufficient conditions for solving money-in-the-utility-function models when contemporaneous asset returns are uncertain. A unique solution to such models is shown to exist under certain measurability conditions. Stochastic Euler equations, whose existence is...