Why did the volatility of U.S. real GDP decline by more than the volatility of final sales with the Great Moderation in the mid-1980s? One explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing. We investigate the role of inventories in the...

In this paper we study whether central banks should react to financial sector variables in their policy rules. We find that responding to asset prices has no impact and does not increase the likelihood of equilibrium indeterminacy. However, a response to entrepreneurial net worth increases the...

I study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic, uninsurable human capital investment risk. The environment is a general equilibrium lifecycle model with a version of a Ben-Porath (1967) human capital accumulation technology,...