Past empirical studies have repeatedly found that plant age matters for aggregate employment dynamics. This paper develops a model of plant life cycle to capture this empirical regularity. In the model, plants differ by vintage and by idiosyncratic productivity. The idiosyncratic productivity is not directly observable, but can be learned over time. This setup gives rise to a learning effect and a creative-destruction effect, under which labor flows from plants with low idiosyncratic productivity to those with high idiosyncratic productivity and from old vintages to new vintages. When calibrated to the U.S. manufacturing job flow series, our model of plant life cycle delivers the observed link between plant age and aggregate employment dynamics.

We propose a novel mechanism giving rise to poverty traps and multiple equilibria in economic performance. It is a potentially important source of persistent underdevelopment across countries and regions. At the core of this mechanism, bridging social capital and social trust feed back on each other, interdependently affecting individuals' earnings and subjective well-being. High trust and abundant bridging social capital reinforce each other, leading to a “high” equilibrium where both these variables take persistently high values, and earnings and well-being are high as well, whereas low trust and lack of bridging social capital create a vicious circle, leading to a “low trust trap” where all these variables are persistently low. The workings of our theoretical model are in agreement with a wide range of findings from the contemporary literature in sociology and social psychology.

We study the dynamic effects of an oil price shock on key economic variables and on the current account of a small open economy. We introduce time-nonseparable preferences into a standard model of a small open economy, where imported oil is used both as an intermediate input in production and as a consumption good. Using a plausible calibration of the model, we show that the changes in output and employment are quite small, and that the current account exhibits the J-curve property, both being in line with recent empirical evidence. After an oil price increase, employment falls and the current account first deteriorates. Over time, with gradually falling expenditures, the trade balance improves sufficiently to turn the current account into a surplus. The model thus provides a plausible explanation of recent empirical findings.

This paper documents three facts. First, the volatility of consumption growth relative to income growth rose from 1947 to 1960 and then fell dramatically by 50% from the 1960s to the 1990s. Second, the correlation between consumption growth and personal income growth fell by about 50% over the same time period. Finally, the absolute deviation of consumption growth from its mean exhibits one break in U.S. data, and the mean of the absolute deviations has fallen by about 30%. A standard dynamic stochastic general equilibrium model is unable to explain these facts. I examine ability of two hypotheses to account for these facts: a fall in credit constraints and changing beliefs about the permanence of income shocks. I find evidence for both explanations. The beliefs explanation is more consistent with the data.

We examine the welfare implications of two types of central-bank transparency: the publication of the information underlying the central bank's decision (decision transparency) and the release of the information that the central bank observes afterwards (postdecision transparency). Decision transparency does not make the public better informed in equilibrium. Even so, it may be socially desirable because it eliminates harmful equilibria. Postdecision transparency has ambiguous effects. It reduces output variance and the distortions stemming from heterogeneous information. In this sense, it can be used as a substitute for monetary policy. However, postdecision transparency generally raises the variance of inflation. We argue that a conflict of interests may arise between society and the central bank with regard to transparency.

This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper studied a model in which Ricardian equivalence holds, and he showed that monetary and fiscal policy can be studied independently. In Bilbiie's analysis, rule-of-thumb consumers break the Ricardian equivalence and generate important consequences for the design of monetary policy. In his model, steady-state public debt was equal to zero. We study a model with both rule-of-thumb consumers and positive steady-state public debt. We find that the mix of fiscal and monetary policies that guarantees equilibrium determinacy is sensitive to the exact values of the parameters of the model.

We investigate the business cycle effects of imperfect transmission of technology shocks within a basic real business cycle (RBC) model along two dimensions. First, we assume that agents cannot distinguish a temporary increase in productivity growth from a sustained increase in the underlying growth rate of productivity and instead must conduct signal extraction exercises and update beliefs about the source of aggregated shocks. Second, we propose a technology adjustment cost resulting in the slow diffusion of technological innovations into the production process. Both of these impediments to the transmission of technology result in a large initial wealth effect, increasing investment and hours less, relative to the usual RBC model without these frictions. Furthermore, each of these features is capable of producing a decline in hours on impact of the technology shock matching the negative response in hours found in the data by such works as Gali [American Economic Review 89(1), 249–271 (1999)].

This paper studies the effects of monetary policy in an inventory-theoretic model of money demand. In this model, agents keep inventories of money, despite the fact that money is dominated in rate of return by interest-bearing assets, because they must pay a fixed cost to transfer funds between the asset market and the goods market. In contrast to exogenous segmentation models in the literature, the timing of money transfers is endogenous. As a result, the model endogenizes the degree of market segmentation as well as the magnitudes of liquidity effects, price sluggishness, and the variability of velocity. I first show that the endogenous segmentation model can generate the positive long-run relationship between money growth and velocity observed in the data, which the exogenous segmentation model fails to capture. I also show that the short-run effects of money shocks on prices, inflation, and nominal interest rates are not robust.

In this note, we study the basic Ramsey models with labor–leisure choice. We first study the deterministic model and find that a closed-form solution exists and is represented by the Gauss hypergeometric functions. We next incorporate stochastic productivity shocks into the model. We prove that the analytical solution path still exists if the coefficient of relative risk aversion is equal to the capital share.

We offer an explanation for why perks are overprovided to high-profile CEOs. Hidden saving by an agent makes it difficult for a principal to control the agent's moral hazard problem. However, an agent typically cannot save perks; for example, a CEO who owns the right to use a private jet for personal use cannot bank the unused airplane hours. Thus, the principal may oversupply the agent perks to avoid the hidden saving problem. When the agent can both exert lower effort and save wage income, i.e., in the presence of the double deviation problem, we show that the principal supplies more perks than the agent would have purchased on his own (i.e., excessive perks).