This paper analyzes the impact of indexed wage contracts on inflation and social welfare in a Barro–Gordon model with state contingent monetary policy. Wage indexation reduces the inflation bias but may raise the variance of inflation rates. In social optimum wages are fully indexed to the price level, but this requires optimal wage adjustments to productivity shocks. If wage adjustments to pro...

The business-cycle behavior of a matching model with endogenous separations is studied in this paper. We show that whether aggregate productivity shocks have a larger effect on the vacancy–unemployment ratio than in a model with exogenous separations depends on whether worker productivity stochastically increases with tenure. The difference in the response is quantitatively small, however. We a...

We quantitatively analyze an equilibrium job-matching model in the presence of time-varying discount rates and persistent aggregate shocks to labor productivity. In our model workers and firms learn about an unobservable, idiosyncratic component of match productivity. We obtain three results. First, the unemployment rate of young, inexperienced workers is more sensitive to economic conditions t...

We study the Danish unemployment experience 1905-92 using a common trends model with cointegration constraints. To justify the identifying assumptions about the cointegration vectors and the common trends we present a simple macroeconomic model of the labor market. The model determines the long run behavior of labor productivity, employment, unemployment, real product and real consumer wages. T...

First version: April, 2001 This version: February, 2005 ABSTRACT This paper analyzes a model of investment with fixed investment costs and capital market imperfections. In this model finance influences the level of capital firms hold, as well as the frequency at which they invest. In consequence investment reacts nonlinearly with respect to shocks to productivity and liquidity. Liquidity and pr...

In this paper, we introduce the role of Multinational Production (MP) in cross-country risk sharing. We present a two-country, two-sector model with complete financial markets, and country-specific productivity shocks to the tradable sector. Firms can do MP by opening affiliates abroad which bear the productivity shock to the host country. By treating MP simultaneously as a portfolio and produc...

How does competition in a firm's product market affect the behavior of its stock? We examine this question in a noisy rational expectations economy in which firms operate under monopolistic competition. Production is subject to productivity shocks and requires capital, raised on a perfectly competitive equity market. Investors observe firms' past profits and collect private information about th...

R&D investment drives productivity growth. Therefore, its uctuations over the business cycle a ect long-run dynamics. I show that taking into account the size distribution of innovating rms generates new insights on this link. I write an endogenous growth model with heterogeneous rms assuming, in line with empirical evidence, that small rms have a relatively higher innovation capacity than larg...

This paper addresses capital accumulation and capital productivity change in an economy with endogenous technological change and floors and ceilings in activity. The properties of the resulting two-variable noniinear differential equation system are studied in some detail. The welfare implications are also considered. When discrete lags are introduced, wide-ranging behaviour emerges, which incl...

We consider a linear growth model with idiosyncratic productivity shocks in which producers cannot commit to repay their loans. Borrowing constraints are determined endogenously by the borrowers’ incentives to repay, assuming that defaulters lose a share of output and are excluded from future trade in the credit market. We characterize necessary and sufficient conditions for the enforceability ...