(1992) and Kydland (1995) for a survey of this literature. 2 Merz (1995) introduces such time delays in the form of costly search in the labor market while Christiano and Todd (1996) considers a time-to-plan investment process. M odern business cycle theories are evaluated on the basis of their ability to explain key empirical features of the postwar U.S. business cycle. The failure of nonmarke...

This paper investigates the role of sectoral reallocations in divergence productivity Europe, based on a database for 33 sectors and 14 countries between 1995 2015. Using contribution growth to Total Factor Productivity (TFP) dynamics at country level, we highlight that variations relative size sectors—less productive growing relatively more ones—have been origin variable losses main European c...

During the recent U.S. financial crisis, the large decline in economic activity and credit was accompanied by a large increase in the dispersion of growth rates across firms. However, even though aggregate labor and output fell sharply during this period, labor productivity did not. These features motivate us to build a model in which increased volatility at the firm level generates a downturn ...

This paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation. Sellers can change price only by incurring a real “menu cost.” We calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new U.S. data set of individual prices due to Klenow and Kryvtsov. The prediction of...

The paper develops a model in which both long–run growth rates and credit market development are endogenous. Agents facing idiosyncratic productivity shocks cannot perfectly commit to repay their loans, but the threat of credit market exclusion specifies endogenous debt limits preventing default in equilibrium. A growth push makes credit market participation more valuable and relaxes debt limit...

This paper shows that the quantitative predictions of an equilibrium asset-pricing model with financial frictions are consistent with key features of the Sudden Stop phenomenon. Foreign traders incur costs in trading assets with domestic agents, and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings. When this constraint does not bind, sta...

Standard real business cycle theory predicts that consumption should be smoother than output, as observed in developed countries. In emerging economies, however, consumption is more volatile than income. In this paper we provide a novel explanation of this phenomenon, the ‘consumption volatility puzzle’, based on political frictions. We develop a dynamic stochastic political economy model where...

The standard Mortensen-Pissarides model of search and matching is extended by introducing capital, risk-averse workers, labor-leisure choice and lack of complete markets to insure away unemployment shocks. The business cycle properties of the model with aggregate productivity shocks are explored, with an emphasis on labor market dynamics. In particular, I ask whether the model can replicate the...

In this paper, we analyze how the introduction of habits and aspirations a ects the distribution of wealth when individuals’ labor productivity is subject to idiosyncratic shocks and bequests arise from a joy-of-giving motive. In the presence of either bequests or aspirations, labor income shocks are transmitted intergenerationally and this transmission, together with the contemporaneous income...