This paper proposes a fully micro-founded framework that incorporates optimizing banks into a DSGE model, and evaluates the role of banks and financial shocks in the Iranian business cycles. We consider banks that offer different banking services and interact in an interbank market. Loans are produced using interbank borrowing and deposits. Banks have monopoly power, but cannot set nominal depo...

Policy makers are primarily interested in fluctuations in the level of activity  the classical cycle. Academics have in recent times focused their efforts on studying fluctuations and comovement in aggregate variables that have been rendered stationary after some appropriate transformation. That is academics focus on the growth cycle. One reason for this shift in focus was the impression among...

Real-business-cycle models rely on total factor productivity (TFP) shocks to explain the observed co-movement between consumption, investment and hours. However an emerging body of evidence identifies “investment shocks”as important drivers of business cycles. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and no...

This study analyzes the sensitivity of US giving to both business cycle fluctuations and trend growth. With tax revenues as a point of reference, US giving constitutes a relatively stable source of revenue. Total giving is characterized by a business cycle volatility which is comparable to the moderate one of indirect taxes. However, this overall finding is composed of the respective sub-compon...

This paper aims at analysing the dynamic properties of real wages over the business cycle. We apply a Bayesian vector autoregressive (BVAR) model and analyse the possible asymmetric behaviour of real wages in response to different macroeconomic shocks. Finally, we use the NBER business cycle periodisation to evaluate how real wages interact with the different shocks during contractions and boom...

Psychological factors, market sentiments, and shifts in beliefs are believed by many to play a nontrivial role in inducing and amplifying economic fluctuations. Yet, these forces are rarely considered in macroeconomic models. This paper provides an attempt to evaluate the empirical role of expectational shocks on business cycle fluctuations. The paper relaxes the conventional assumption of rati...

This article documents the business cycle properties of workers’ remittance flows to Mexico. We also discuss key differences between the cyclical properties of remittance inflows and the cyclical properties of foreign direct investment (FDI). We find evidence that remittances are countercyclical with respect to Mexico’s business cycle. However, this result is not robust to the use of different ...

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...