The importance of consumer confidence in stimulating economic activity is a disputed issue in macroeconomics. Do changes in confidence represent autonomous fluctuations in optimism, independent of information on economic fundamentals, or are they a reflection of economic news? I study this question by using high-frequency microdata on spending and consumer confidence, and I find that consumer c...

Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We propose a new calibration strategy of the standard model that uses data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters the value of non...

Monetary policy objectives and targets are not necessarily constant over time. The regime-switching literature has typically analyzed and interpreted changes in policymakers’ behavior through simple interest rate rules. This paper analyzes policy regime-switches by explicitly modeling policymakers’ behavior and objectives. We show that changes in the parameters of simple rules do not necessaril...

Idiosyncratic productivity shocks induce larger adjustments to hiring than aggregate shocks, because general equilibrium effects on search frictions and wages partially offset the latter. When firms cannot disentangle the two shocks, they attribute aggregate disturbances partly to idiosyncratic factors and to that extent, respond more aggressively. This translates into increased aggregate volat...

We analyze the implications of financial openness to macroeconomic volatility in a small open economy. The volatility of major macroeconomic aggregates shows non-monotonic pattern with respect to the degree of financial openness in the model without domestic financial frictions. The introduction of domestic financial frictions makes the volatility patterns flatter. Our model explains the lack o...

We build a dataset of quarterly hours worked for 14 OECD countries. We document that hours are as volatile as output, that a large fraction of labor adjustment takes place along the intensive margin, and that the volatility of hours relative to output has increased over time. We use these data to reassess the Great Recession and prior recessions. The Great Recession in many countries is a puzzl...

This paper analyses a RBC model in continuous time featuring deterministic incremental development of technology and stochastic fundamental inventions arriving according to a Poisson process. Other than in standard RBC models, shocks are uncorrelated, irregular and rather seldom. In two special cases analytical solutions are presented. In the general case a delay differential equation (DDE) has...

This paper studies the joint business cycle dynamics of inflation, money growth, nominal and real interest rates and the velocity of money. I extend and estimate a standard cash and credit monetary model by adding idiosyncratic preference shocks to cash consumption as well as a banking sector. The estimated model accounts very well for the business cycle data, a finding that standard monetary m...

We present a simple menu cost model which explains the finding that firms are more likely to adjust prices upward than downward. Asymmetric adjustment to shocks arises naturally, even without trend inflation, from the desire of firms to keep industry prices as high as is sustainable and the non-convexity due to menu costs. It implies that aggregate demand shocks have asymmetric effects — negati...

This paper provides new evidence that estimates obtained from aggregated data may not provide reliable estimates of average firm-level parameters, if the composition of producers with different levels of productivity changes over the business cycle. I examine plant-level data and show that, due to the countercyclical reallocation of output among heterogenous plants, productivity measures based ...