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Endogenous Business Cycle Propagation and the Persistence Problem: The Role of Labor-Market Frictions

A recent trend in dynamic stochastic general equilibrium (DSGE) modeling has seen frictions and shocks proliferate to improve the fit of macro models. This modeling strategy has been prone to criticism. Among the new frictions, some like the rule-of-thumb behavior of price-setters and the backward indexing of wages and prices lack a convincing micro foundation (Woodford, 2007; Cogley and Sbordone, 2008), whereas of the many shocks now driving these models, some are dubiously structural and do not have a clear economic interpretation (Chari, Kehoe and McGrattan, 2009). But do DSGE models really need to rely on heavy batteries of frictions and shocks to account for the salient features of the postwar U.S. business cycle? The answer we provide in this paper is no.

Financial Business Cycles

I construct a dynamic stochastic general equilibrium model where leveraged banks amplify the effects on economic activity of given financial shocks. The main questions that I want to address are: (1) To what extent can arbitrary redistributions of wealth disrupt the credit intermediation process that channels funds from savers to borrowers? (2) To what extent can a disruption of the credit intermediation process cause business cycles?

The Impact of Macroeconomic Uncertainty on Firms Changes in Financial Leverage

There is a large literature, starting with Jensen & Meckling (1976), discussing how agency conflicts affect a firm's capital structure decisions. Evidence from early work generally indicates that entrenched managers prefer lower leverage (Berger, Ofek & Yermack (1997), Garvey & Hanka (1999)). In recent years, widely available use of indices to measure shareholder rights (for example, the Gin dex of Gompers, Ishii & Metrick (2003)) has produced new results that do not agree with these empirical findings.

Cash Flows and Leverage Adjustments

Do firms have leverage targets? How quickly do they approach these targets? What are the drivers of the targets? What are the impediments to achieving those targets? We are not the first to ask these questions, and the literature contains little consensus on the correct answers. Recent studies include Leary and Roberts (2005), Flannery and Rangan (2006), Huang and Ritter (2009), and Frank and Goyal (2009). Almost all research in this arena concludes that firms do have targets (Welch, 2004, being the obvious exception) but that the speed with which these targets are reached is unexpectedly slow.

Acne and Diet By Alex Garcia-Osuna

Acne is the most common skin condition in the United States. It affects between seventeen and forty-five million people. It is a condition that affects the skin over areas of the body with large oil glands, causing clogged pores and lesions. (2) These lesions can take the form of whiteheads, blackheads, pimples, and cysts. Whiteheads are caused by bulging follicle heads, while blackheads are plugs composed of oil and dead skin cells that are open to the surface.

Stress and Acne: A Vital Connection

Stress. It's been making headlines as the underlying cause for many illnesses. Stress affects everyone, especially the otherwise healthy individual who is put in an extraordinary situation such as caring for an ill family member or friend. A study published in the Proceedings of the National Academy of Sciences, finds that caregivers of ill family members run the risk of getting sick themselves with illnesses like heart disease or cancer. The study found that caregivers had four times the increase of Interleukin-6 (IL-6), an immune chemical that naturally increases with age, compared to other participants in the study. This can put people at a risk for a host of illnesses. Stress triggers a series of changes in the body that if left unchecked, can be extremely damaging.

Unemployment Insurance and Job Search in the Great Recession

While the so-called "Great Recession" officially ended in June 2009, the labor market remains stagnant. In September 2011, the unemployment rate remained above nine percent—it has fallen below that threshold for only 2 of the last 29 months—and nearly 45%of the unemployed had been out of work for more than six months.

Political Business Cycles at the Municipal Level

This article reports on tests of rational political business cycle (PBC) models using an extensive new data set covering all Portuguese mainland municipalities. With a panel of observations for budget balances and expenditure items over the 1979-2000 periods, it is possible to examine the fiscal choices of local governments over a number of electoral cycles.

Economic Analysis of Weight Change, Overeating and Dieting

Why does a person become overweight or obese? The proximate answer is simple: he consumes more calories than he expends. An answer to the ultimate question, however - why does someone regularly choose to consume more calories than demanded by energy expenditures? - confronts a deep conceptual problem dating back to the Platonic dialogues. How should we regard apparently self-defeating choices, such as gaining unwanted excess weight, where consumption costs and benefits are separate in time, so that today's choices have consequences for one's future "self"?

Influenza virus - Protection and Adaptation

Influenza is an acute respiratory disease caused by influenza type A and B viruses. Human influenza viruses may infect up to 15% of the total population during the seasonal epidemics, causing many cases of severe illness. Each year, approximately 350 million doses of influenza vaccine are produced for protection of the risk groups against severe disease. The thesis focuses on the protection against influenza virus infection and disease (Paper I and II) as well as the analysis of the antigen variation found in primarily the hemagglutinin (HA) gene of the virus (Paper III and IV).

Influenza A ( H 1N1) Virus

What is the new influenza A (H 1N1) virus that has been causing recent outbreaks globally? The recent outbreaks of disease in people globally are caused by a new influenza (or "flu") type A (H1N1) virus. There is a human H1N1 virus circulating and causing seasonal influenza and in the past, very occasionally, H1N1 viruses from swine have infected humans. The specific type of the H1N1 virus causing illness now is new or "novel" and in the current outbreak it is clear that this virus is able to infect humans and be passed from person to person. Although part of the virus may have originated from pigs, there is no evidence that the current spread of infection is coming from that source.

Ebook Understanding the Welfare Effects of Unemployment Insurance Policy in General Equilibrium

Unemployment insurance (UI) allows consumers to cope with the risk of large fluctuations in income due to job losses. It also provides a method of smoothing consumption while unemployed, particularly for consumers who are constrained in borrowing. Because this type of insurance is difficult to provide through the private market, UI has long been viewed as an important government policy. There has been a large amount of research devoted to understanding the effect of government-provided UI, on both theoretical and empirical fronts.

Ebook Equilibrium Unemployment with Matching Frictions and Worker Moral Hazard: Does Shirking Increase Unemployment?

This chapter develops a job matching model with downward wage rigidity. We depart from the standard model of Mortensen and Pissarides (1994) by assuming that firms cannot perfectly monitor effort. Workers' effort is therefore not contractible and firms need to pay their workers an incentive compatible wage.

Ebook Do firms have leverage targets? Evidence from acquisitions

Theory and subsequent empirical evidence renders conflicting views on the extent to which firms have meaningful target capital structures. Explanations of financing choices based on market timing have recently joined the pecking order theory as alternative models with some empirical support. We provide evidence on the importance firms and market participants place on leverage targets vs. pecking order or market timing concerns by examining bidders that engage in takeovers that have the potential to significantly affect their capital structure.

Ebook Business Cycles and Fiscal Policies: The Role of Institutions and Financial Markets

Macroeconomic policies are designed to stabilize business cycle fluctuations. For instance, US fiscal and monetary policies have been expansionary in response to weak domestic conditions in the last years. Similar behavior has been displayed by economic policies among other industrial economies. However, the cyclical properties of macroeconomic policies and, specially, fiscal policies are a much more disputed issue among emerging market economies (EMEs).

Ebook Monetary transmission in low income countries

Economists have devoted a substantial amount of attention to the monetary transmission mechanism, but typically in the context of economies with highly sophisticated and well-functioning financial markets. Much less is known about monetary transmission in economies with more rudimentary financial systems not just quantitatively, but even qualitatively.

Ebook External Adjustments and Coordinated Exchange Rate Policy in Asia

Over the last decade we have witnessed rising global imbalances that can be characterized by large current account deficits for the U.S. and large current account surpluses for most East Asian countries and oil producing nations. Perhaps the most influential explanation for the widening U.S. current account deficits is the widening productivity gaps between the U.S. and the rest of the world (Hunt and Rebucci, 2005? En gel and Rogers, 2006? Chakraborty and Dekle, 2008). The fact that the deficit with East Asia is the most rapidly growing component of U.S. current account deficits may indicate, however, that Asian current account surpluses are an alternative cause.

Equilibrium Search Unemployment with Explicit Spatial Frictions

It has been recognized fora longtime that distance interacts with the diffusion of information. In his seminal contribution to search, Stigler (1961) puts geographical dispersion as one of the four immediate determinants of price ignorance. The reason is simply that distance affects various costs associated with search. Inmost search models, say for example Diamond (1981 and 1982), distance between agents or units implies a fixed cost of making another draw in the distribution. In other words, a spatial dispersion of agents creates more frictions and thus more unemployment. Conventional labour economics faces difficulties in thinking about these spatial differences because it is biased towards the notion of a spaceless market place ruled by the walrasian auctioneer.

The Effects of the Bond Investor Base Stability on the Leverage of the Firm

In the standard theory of corporate finance, supply conditions in the credit markets have traditionally not been considered as prominent determinants of the firm's financing decisions and resulting capital structure of the firm. Instead, the theory has been primarily demand-driven: in trade-off theory, firms choose the optimal debt-equity ratio such that the marginal tax benefit of issuing one more unit of debt equals the marginal cost of debt (in the form of increased cost of distress and bankruptcy). In the pecking-order theory, firms raise external funds by choosing the instrument that is the most advantageous given the information asymmetry the firm faces.

Monetary-Exchange Rate Policy and Current Account Dynamics

The debate over the role of exchange rate in the formulation of monetary policy is far from being settled. Moreover, the implications of current account dynamics for monetary policy are either not studied or not well understood. The framework developed in the paper is intended to seek answer to two questions.

An Equilibrium Theory of Learning, Search and Wages

When workers have incomplete information about their own job-finding process, search outcomes convey valuable information. Differences in search outcomes that may initially be caused by luck can induce different updating of workers beliefs about their own job finding process, which will influence workers search behavior in the future and lead to further differences in their re-employment rates and wages. In this paper, we develop an equilibrium framework to characterize this endogenous heterogeneity generated by learning from search and analyze its interactions with job creation and wage determination.

Inflation Dynamics in Japan: The Calvo Model and Wage Rigidity

This paper provides further evidence of the fit of the new Keynesian Phillips curve for Japan over the period 1972-2003. It is motivated by the sense that Japan's degree of price rigidity found in Sanchez (2005) is implausibly severe and maybe unduly affected by assumption that real marginal cost is constant. It also tests whether the estimated parameters are time invariant, using structural break techniques developed in Rossi (2004) and Andrews (1993).

A Model of Endogenous Nontradability and its Implications for the Current Account

Modern open-economy macroeconomics views the current account as a form of intertemporal trade, where countries borrow or lend to smooth their consumption levels across periods, while facing an intertemporal budget constraint and a real interest rate that reflects the price of borrowing. This intertemporal approach to the current account has long recognized that the existence of non traded goods limits the ability of countries to engage in such intertemporal trade. In a classic contribution to this literature, Dornbusch (1983) showed that when some goods are non tradable, the interest rate faced by a country in making its intertemporal decisions can deviate greatly from the interest rate prevailing in the world capital market.

Equilibrium Unemployment, Job Flows and Inflation Dynamics

A classic challenge that macroeconomists face is to explain the cyclical fluctuations of output, unemployment and inflation. Recently, New Keynesian (NK) business cycle models have made important advances in explaining the links between money and the joint dynamics of output and inflation.

Inflation Dynamics and the Cost Channel of Monetary Transmission

This paper aims at revealing whether costs of external funds affect pricing decisions of firms and thus matter for inflation dynamics in the G7 countries. While financial markets are already considered in various studies focussing on the transmission of monetary policy shocks, i.e., in the literature on the so-called' credit channel', their impact on inflation dynamics within the New Keynesian approach, which by now serves as the predominant framework for monetary policy analysis, has rarely been taken into account.

Examining Success of Paleo Diet in Afibbers

A considerable number of afibbers have been able eliminate the occurrence of atrial fibrillation while observing the plan set forth in Louis Cordain's book, "The Paleo Diet". The basic premise of Paleo eating involves the elimination of all grains and other foods not found in their natural state. It's really more than that but for now, let's focus on this one facet.

Why Diets Don't Work

Many Americans view a healthy lifestyle as something difficult to attain and something that's not much fun. Traditional diets have taught us that to lose weight, we must count calories, keep track of everything we eat, and deprive ourselves by limiting the amount and kinds of foods we eat. Diets tell us exactly what and how much food to eat, regardless of our preferences and individual relationships with hunger and satiety. Dieting can help us lose weight (fat, muscle, and water) in the short term but is so unnatural and so unrealistic that it can never become a lifestyle that we can live with, let alone enjoy!

Examining the Impact of Credit Access on Small Firm Survivability

The recent economic turmoil beginning in late 2007 has challenged businesses of all sizes. Firms have been faced with a great deal of uncertainty regarding sales and the economic outlook. At the same time, the recent downturn has dramatically impacted the availability and terms of credit. Over the 2007-2009 period, financial institutions have reported tightening their credit standards for approving loans (SLOOS).

Fiscal Deficits, Current Account Dynamics and Monetary Policy

A renewed interest in the dynamics of the current account spurred by productivity and fiscal shocks has recently emerged as a consequence of the record deterioration of the current account balance in the US, which has been accompanied first by the faster productivity growth of the 90's, and then by the new large fiscal deficits run in the aftermath of September 11.

Entrepreneurship Dynamics, Market Size and Fiscal Policy

It is anticipated that the world's economies will be faced with severe macroeconomic challenges over the next decade. The global financial crisis and the resulting global recession led to the closure of many firms, rising unemployment and high levels of public debt in most developed countries. Despite the end of the recession, fears for the future growth of demand remain. The need to reduce public sector deficits, built up partly as an initial response to the crisis, through increases in taxation and reductions in government expenditure have led some to predict that growth will remain low, and unemployment high, for many years to come.

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