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Productivity shocks and budget deficits are considered to be two key determinants of the current account. In order to assess formally the role of both factors in driving current account movements, the present paper extends the standard intertemporal model of the current account to allow for Non

of the model. I show that a shock that changes average labor productivity primarily alters the present value of wages, generating only a small movement along a downward sloping Beveridge curve (unemployment-vacancy locus). A shock to the job destruction rate generates a counterfactually positive correlation

We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets play a dual role: not only are they factors of production, but they also serve as collateral for loans. The dynamic interaction

A growth model with shocks to technology is studied. Labor is indivisible, so all variability in hours worked is due to fluctuations in the number employed. We find that, unlike previous equilibrium models of the business cycle, this economy displays large fluctuations in hours worked

This paper extends the stochastic growth model of Brock and Mirman [J. Econ. Theory 4 (1972), 497-5131 to allow the production shocks to be correlated over time. The resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent

labor productivity in the wage equations. We find that the reaction of wages to sectoral labor productivity is almost three times larger than the response to pure idiosyncratic (firm-level) shocks, a result which crucially hinges on the use of physical TFP as an instrument. These results are all robust

. In response, economists have developed a second generation of sticky-price models that are state dependent and that include both …xed costs of price adjustment and idiosyncratic shocks. Nonetheless, some ambiguity remains about the extent of monetary nonneutrality that can be attributed to costly price

One of the important functions of financial intermediation is intertemporal risk smoothing. This paper studies the effects of a production shock in a closed economy and compares the abilities of market-based and bank-based financial systems in processing the shock. The analysis of the shock

be cleared with the author or authors. Recent IFDPs are available on the Web at www.federalreserve.gov/pubs/ifdp/. Productivity Shocks, Habits, and the Current Account Joseph W. Gruber* Abstract: Empirical work regarding Intertemporal Current Account (ICA) models has centered around two distinct testing