A search-theoretic model of equilibrium unemployment is constructed and shown to be consistent with the key regularities of the labor market and business cycle. The two distinguishing features of the model are: (i) the decision to accept or reject jobs is modeled explicitly, and (ii) markets are incomplete. The model is well suited to address a number of interesting policy questions. Two such a...

Forward-looking monetary models with Taylor-type interest rate rules are known to generate indeterminacies, with a potential dependence on extraneous “sunspots,” for some structural and policy parameters. We investigate the stability of these solutions under adaptive learning, focusing on “common factor” or “resonant frequency” representations in which the observed sunspot has a suitable time-s...

We examine stability under learning of sunspot equilibria in Real Business Cycle type models with indeterminacies. Our analysis emphasizes the importance of examining alternative representations of sunspot solutions. A general bivariate reduced form contains parameter regions in which sunspots are stable under learning. However, for parameters restricted to those generated by standard models of...

We examine the dynamic properties of an endogenous growth model with an explicit R&D sector in order to evaluate its ability to propagate temporary disturbances into persistent fluctuations in macroeconomic variables. We demonstrate that a large proportion of the variability and persistence of measured Solow residuals can be thought of as reflecting the endogenous accumulation and adaptation of...

A number of recent studies examining historical experiences with deflation have called into question the widely-held view that maintains deflation is economically harmful. These studies contend that a broad, historical perspective reveals a more nuanced view of deflation, one that requires taking seriously both malign and benign deflation. This paper builds on these findings by taking an in-dep...

This paper uses a structural, large dimensional factor model to evaluate the role of ‘news’ shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by ‘non-fundamentalness’ and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explainin...

We provide a model of rational bubbles in a DNK framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade bubble assets to raise their net worth. The bubble assets command a liquidity premium and can have a positive value. Monetary policy affects the conditions for the existence of a bubble, its steady-state size, and its dynamics including ...

This paper assumes that a subjective discount factor is affected by an average level of investment in future-oriented resources in an economy (investment externalities) in addition to a level of individual investment in future-oriented resources. Under this assumption, this paper considers a maximization problem formulated as a pseudo planning problem and shows the conditions under which equili...

We look at two countries that have independent fundamentals, but share the same group of investors. Each country might face a self-fulfilling crisis: Agents withdrawing their investments fearing that others will. A crisis in one country reduces agents’ wealth. This makes them more averse to the strategic risk associated with the unknown behavior of other agents in the second country, increasing...

In this paper we study the cyclical behavior of job and worker flows. Wefindfor the Netherlands that employment and unemployment flows are large, relative to the stocks, that both the sum ofemployment in and outflow and the sum of job creation and destruction (je and jd) move countercyclical. Other issues that we examined include the importance ofaggregate vs. sectoral shocks, the persistence o...