Dynamic, stochastic, general equilibrium models based on the New Keynesian paradigm have become a powerful tool to investigate the propagation of shocks and inflation dynamics. In this framework price rigidities establish a link between nominal and real activity: if nominal prices are staggered, fluctuations of nominal aggregates trigger fluctuations of real aggregates. Using this framework, seminal work by Gali and Gertler (1999) has documented that the dynamic behaviour of inflation is tightly linked with firms marginal cost (represented by unit labour cost), whose dynamics crucially depend on the functioning of the labour market.
Gali and Gertler (1999) assume frictionless labour markets. However, empirical evidence from virtually all the major industrialised countries, as surveyed by Bean (1994) and Nickell (1997), shows that labour markets are characterised by frictions that prevent the competitive allocation of resources. As shown in Krause and Lubik (2007), these frictions, once incorporated in a New Keynesian model, enrich the notion of marginal cost, by incorporating the costs of establishing a work relationship over and above the unit labour cost, thereby, in principle, altering the dynamics of inflation. A growing number of empirical studies document that embedding labour market frictions into a standard New Keynesian model increases the modelns empirical performance and enables a more accurate description of inflation dynamics.
The role of international capital flows in economic development raises important open questions. In particular, the question asked by Robert Lucasalmost twenty years ago—why so little capital flows from rich to poor countries—received renewed interest as capital has been flowing "upstream" from developing countries to the U.S. since 2000. This paper takes a fresh look at the pattern of capital flows to developing countries through the lenses of the neoclassical growth model.
The past decade brought to the public’s attention record-breaking bankruptcy filings in the U.S. While many of these failures occurred in association with the downturn in the market, many did not. Some, for example, were the result of significant fraud.
Regardless of the causes of these substantial bankruptcies, and particularly in the wake of the Enron and WorldCom collapses in the early 2000s, a strong consensus emerged among policymakers and industry observers that existing management practices and government oversight were insufficient to promote a well-functioning and sound security market.
