This paper analyzes the role of heterogeneous households in propagating shocks over the business cycle by generalizing a basic sticky-price model to allow for imperfect risk-sharing between households that differ in labor incomes. I show that imperfectly insured household consumption distorts...

Using an estimated DSGE model that features monetary and fiscal policy interactions and allows for equilibrium indeterminacy, we find that a passive monetary and passive fiscal policy regime prevailed in the pre-Volcker period while an active monetary and passive fiscal policy regime prevailed...

Using a micro-founded model and a likelihood-based inference method, we show that while a passive monetary and passive fiscal policy regime prevailed in the U.S. before Paul Volcker's chairmanship at the Federal Reserve, an active monetary and passive fiscal policy regime prevailed after his...