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The sensitivity of U.S. aggregate investment to shocks is procyclical: the response upon impact increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally from a DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, our model and evidence(More)
What is the impact of time-varying business uncertainty on economic activity? Using (partly confidential) business survey data from the U.S. and Germany in structural VARs, we find that positive innovations to uncertainty lead to prolonged declines in economic activity. Their high-frequency impact is small. There is no evidence of the " wait-and-see(More)
A striking fact about pricing is the prevalence of " sales " : large temporary price cuts followed by prices returning exactly to their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers with different price sensitivities. Even if firms can adjust sales without cost, monetary policy has large(More)
Microeconomic lumpiness matters for macroeconomics. According to our DSGE model, it explains roughly 60% of the smoothing in the investment response to aggregate shocks. The remaining 40% is explained by general equilibrium forces. The central role played by micro frictions for aggregate dynamics results in important history dependence in business cycles.(More)
I develop a structural model of newspaper markets to analyze the effects of ownership consolidation. In the model, firms choose both price and quality including the amount of non-advertising space, the number of reporters, and the number of opinion section staff. I estimate the model using a new data set on newspaper prices and characteristics. I then(More)
Is time-varying firm-level uncertainty a major cause or amplifier of the business cycle? This paper investigates this question in the context of a heterogeneous-firm RBC model with persistent firm-level productivity shocks and lumpy capital adjustment, where cyclical changes in uncertainty correspond naturally to cyclical changes in the cross-sectional(More)
A widespread belief among economists, policy-makers, and members of the media is that the " confidence " of households and firms is a critical component of the transmission of fiscal policy shocks into economic activity. In this paper we take this proposition to the data. We use the commonly accepted restrictions from the literature to identify government(More)
Using a German firm-level data set, this paper is the first to jointly study the cyclical properties of the cross-sections of firm-level real value added and Solow residual innovations , as well as capital and employment adjustment. We find two new business cycle facts: 1) The cross-sectional standard deviation of firm-level innovations in the Solow(More)
There have been suggestions for monetary policy to engineer higher inflation expectations to stimulate spending. We examine the relationship between expected inflation and spending attitudes using the micro data from the Michigan Survey of Consumers. The impact of higher inflation expectations on the reported readiness to spend on durables is generally(More)
Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science,(More)