This paper makes two contributions to the literature. First, it explores the role of monetary policy in generating Pigou cycles. Second, the paper provides a partial resolution of the comovement problem associated with monetary policy shocks. The paper estimates a two sector dynamic new...

Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various...

In macroeconomics, life-cycle models are typically used to address exclusively life-cycle issues. This paper shows that modeling the life-cycle may be important when addressing public policy issues, in this case the welfare costs of inflation. In the representative agent model, the optimal...

A widely cited failing of real business cycle models is their inability to account for the cyclical patterns of financial variables. Perhaps less well known is the fact that the return to capital and equity are identical in the neoclassical growth model. This paper constructs a measure of the...

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...

Reasonably calibrated versions of the Diamond-Mortensen-Pissarides search and matching model of unemployment underpredict, by a wide margin, the volatility of vacancies, unemployment, and the vacancies-unemployment ratio - variables at the heart of this model. These shortcomings motivate two...

Shimer's puzzle is that the textbook Diamond-Mortensen-Pissarides model exhibits fluctuations in labor market variables that are an order of magnitude too small. Introducing search effort of the unemployed brings the model's predictions for these fluctuations very close to those seen in the...

It is well known that the Diamond-Mortensen-Pissarides model exhibits a strong trade-off between cyclical unemployment fluctuations and the size of rents to employment. Introducing endogenous job search effort reduces the strength of the trade-off while bringing the model closer to the data....

Tax-based deficit reduction experiments for the U.S.\@ and EMU-12 are conducted using an open economy model. In welfare terms, raising the consumption tax is the least costly, followed by the labor income tax, then the capital income tax. Use of an open economy model means that the incidence of...