Studies in Aggregate Analysis

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The major part of this research is concerned with the further development and use of the Diaz-Gimenez, Prescott, et al applied general-equilibrium framework to evaluate monetary and fiscal policy rules. The thesis underlying this research program is that the standard assumption that financial markets are costless to operate is not a reasonable one when it comes to evaluating monetary and fiscal stabilization policies. In the framework being developed, young households borrow to finance houses and businesses. The old, who have saved for their retirement, lend to the intermediaries. Borrowing and lending rates differ by a large amount as in fact on average they do. Preliminary results are that the effects of public consumption shocks are much larger in such worlds than in the standard real business cycle model. Another dimension where the behavior of this model differs from that of the standard real business cycle model with money introduced via the cash-credit good constraint is that there can be large and highly persistent deviations from the empirical demand for money relationship. The other part of the research proposal is to determine whether corporate takeovers, or some takeover like arrangement, are necessary for economic efficiency.