We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in a tractable environment. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among …
The textbook New Keynesian (NK) model implies that the labor share is procyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages during the …
The initial government debt-to-gross domestic product (GDP) ratio and the government's commitment play a pivotal role in determining the welfare-optimal speed of fiscal consolidation in the management of a debt crisis. Under commitment, for low or …
The response of hours worked to technology shocks in the postwar US economy has increased over time. We offer a structural interpretation of this important time-varying macroeconomic moment. The time varying patterns captured by a structural VAR are …
We contribute to an emerging literature that brings the constant elasticity of substitution (CES) specification of the production function into the analysis of business cycle fluctuations. Using US data, we estimate by Bayesian-Maximum-Likelihood …
We analyze the effects of a government-spending expansion in a dynamic stochastic general equilibrium model with Mortensen–Pissarides labor-market frictions, deep habits in private and public consumption, investment adjustment costs, a constant …
The response of hours to technology shocks is a key controversy in macroeconomics. We show that differences between RBC and NK models hinge on highly restrictive views of technology. We introduce CES production technologies and demonstrate that the …
A New-Keynesian model with deep habits and optimal monetary policy delivers a larger-than-1 fiscal multiplier and consumption crowding in. Optimized Taylor-type rules dominate a conventional Taylor rule. Consumption is crowded out if the Taylor rule …
We contribute to a recent literature on the normalization, calibration and estimation of CES production functions. The problem arises because CES ‘share’ parameters are not in fact shares, but depend on underlying dimensions—in other words they are …