utomatic stabilizers are a very old idea. Indeed, they are a very old, very Keynesian, idea. At the same time, they fit well with the current mistrust of discretionary policy and the focus on policy rules. Yet in the last ten years, they have not been discussed much by academics. For all of these reasons, it is indeed a good time to revisit the issues. Are automatic stabilizers an old and good idea? Or an old and bad one? Should

Authorized for distribution by Olivier Blanchard

Authorized for distribution by Olivier Blanchard

Coen Teulings, as well as participants in numerous seminars, for comments, help and advice. Malcomson is grateful to the Leverhulme Foundation for …nancial support. Part of the research described in this paper was undertaken while Mavroeidis was a Research Fellow at the University of Amsterdam whose …nancial support is gratefully acknowledged. This paper combines matching frictions with e ¢ ciency wages to deter shirking in a model that is estimated for the USA and the UK to derive the underlying structural parameters. Methods robust to weak instruments are used to show that, for both countries, both matching frictions and e ¢ ciency wages play a signi…cant role in enabling the model to t the data even with non-prescriptive formulations for wage determination. The results indicate that adding an e ¢ ciency wage element to matching frictions may be a better way to …t the data than simply searching for an alternative wage formulation.

Authorized for distribution by Olivier Blanchard1

Autor, James Hines, Charles Jones, and Timothy Taylor for comments on earlier drafts. Remaining errors and omissions are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We have benefitted from useful discussions with Olivier Blanchard

The External Balance Assessment (EBA) methodology has been developed by the IMF’s Research Department as a successor to the CGER methodology for assessing current accounts and exchange rates in a multilaterally consistent manner. A first version of EBA was implemented in Spring 2012, with results used to inform the 2012 Pilot External Sector Report. Following an outreach effort and a period of public comment, in Spring 2013 an enhanced version of the EBA methodology was developed and employed in the 2013 Pilot External Sector Report. This background paper provides an extended description and discussion of the 2013 EBA methodology.

grants Nos. SBR 951-2001 and SES-921-3310. The authors would like to thank Olivier Blanchard,

We thank numerous seminar participants and colleagues, especially Olivier Blanchard, Roger Bohn,