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 ...

Having developed an operational model of the economy, we want to ask ourselves the following two questions. First, can the model explain actual business cycle data? Second, to the extent to which it can fit the data, what are the implications for economic policy? To proceed we first have make clear what is meant by “business cycle” data. This requires briefly looking at some US macroeconomic da...

I quantify the role of data revisions in estimating impact monetary policy-induced volatility on business cycle fluctuations. To that end, construct real-time and final data-based measures policy volatility. The results suggest effects two are qualitatively similar. However, real-data output is lower than These findings implications volatility, found literature, possibly overstated.

In this paper, we investigate the properties of alternative monetary policy rules using four structural macroeconometric models: the Fuhrer-Moore model, Taylor’s Multi-Country Model, the MSR model of Orphanides and Wieland, and the FRB staff model. All four models incorporate the assumptions of rational expectations, short-run nominal inertia, and long-run monetary neutrality, but differ in man...

For many, Friedman and Schwartz’s Monetary History of the United States (1963) is synonymous with the notion that monetary contraction and errors by the Federal Reserve caused the Great Depression. Though that is one of the book’s conclusions, this quick summary both sells the book short in important ways and oversells its findings about the 1930s. The crucial way it sells the book short is tha...

Can neoclassical theory account for the Great Depression in the United States— both the downturn in output between 1929 and 1933 and the recovery between 1934 and 1939? Yes and no. Given the large real and monetary shocks to the U.S. economy during 1929–33, neoclassical theory does predict a long, deep downturn. However, theory predicts a much different recovery from this downturn than actually...