In this paper we study the impact of an expansion in public spending in a credit constrained economy with sticky wages. The flexible wage version of the model implies strong expansionary effects on output and consumption but also a counterfactual increase in real wages. The introduction of...

In this paper we study the transmission mechanisms of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in...

This paper attempts to measure the reaction of monetary policy to the stock market. We apply the procedure of Rigobon and Sack (2003) to identify and estimate a VAR in the presence of heteroskedasticity. This procedure fully takes into account the endogeneity of interest rates and stock returns...

In this paper we show that empirically plausible results on the effects of fiscal shocks in Galí, López-Salido and Vallés (2007) rely on a high degree of price stickiness and a large percentage of financially constrained agents. Real rigidities in the form of habit persistence, fixed...

In this paper we show that results on the effects of fiscal shocks in Galí, López-Salido and Vallés (2007) rely on a high degree of price stickiness and a large percentage of financially constrained agents. Real rigidities in the form of habit persistence, fixed firm-specific capital and...

Several influential papers have argued that preferences featuring a weak wealth effect on labour supply are key to generate macroeconomic co-movement across real variables in response to shocks. Using a fully general specification for the instantaneous utility function, we show that the size of...

We investigate the macroeconomic consequences of .uctuations in the effectiveness of the labor-market matching process with a focus on the Great Recession. We conduct our analysis in the context of an estimated medium-scale DSGE model with sticky prices and equilibrium search unemployment that...

A large decline in the e¢ ciency of the U.S. labor market in matching unemployed workers and vacant jobs has been documented during the Great Recession. We use a simple New Keynesian model with search and matching frictions in the labor market to study the propagation of matching e¢ ciency...

We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second...

Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate...