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Author:Hornstein, Andreas 

Working Paper
Accounting for unemployment: the long and short of it

Shimer (2012) accounts for the volatility of unemployment based on a model of homogeneous unemployment. Using data on short-term unemployment he finds that most of unemployment volatility is accounted for by variations in the exit rate from unemployment. The assumption of homogeneous exit rates is inconsistent with the observed negative duration dependence of unemployment exit rates for the U.S. labor market. We construct a simple model of heterogeneous unemployment with short-term and long-term unemployed, and use data on the duration distribution of unemployment to account for entry to and ...
Working Paper , Paper 12-07

Discussion Paper
(S,s) inventory policies in general equilibrium

We study the aggregate implications of (S,s) inventory policies in a dynamic general equilibrium model. Firms in the model's retail sector face idiosyncratic demand risk, and (S,s) inventory policies are optimal because of fixed order costs. The model economy replicates salient features of the business cycle and reconciles evidence that orders are more volatile than sales, and that inventory investment is positively correlated with sales. There are two main results. First, we find that general equilibrium effects and the optimal order size are important for the economy's response to exogenous ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 104

Working Paper
Interest rate versus money supply instruments: on the implementation of Markov-perfect optimal monetary policy

Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. With respect to time consistent policy, the literature focuses on solving for allocations. Recently, however, King and Wolman (2004) have examined implementation issues involved under time consistent policy when the monetary authority chooses nominal money balances. Surprisingly, they find that equilibria are no longer unique under a money stock regime. Indeed, there exist multiple steady states. Dotsey and Hornstein find that King and ...
Working Papers , Paper 07-27

Journal Article
Problems for a fundamental theory of house prices

We describe a simple model of the demand for housing and show that on a balanced growth path the rate at which the relative price of housing changes over time is determined by the relative productivity growth rates of the housing sector and the rest of the economy. A calibrated version of the model has only limited success in accounting for the increased rate of house price appreciation since the mid-1990s. We then extend the model to include a collateral constrained consumer. We show that the impact of collateral constraints is limited. Collateral constraints may affect the level of the ...
Economic Quarterly , Volume 95 , Issue Win , Pages 1-24

Working Paper
Estimating Matching Efficiency with Variable Search Effort

We introduce a simple representation of endogenous search effort into the standard matching function with job-seeker heterogeneity. Using the estimated augmented matching function, we study the sources of changes in the average employment transition rate. In the standard matching function, the contribution of market tightness (matching efficiency) is increasing (decreasing) in the matching function elasticity. For our augmented matching function, search effort is procyclical for small matching elasticity and accounts for most of the transition rate volatility, with small contributions from ...
Working Paper , Paper 16-13

Journal Article
Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism

Economic Quarterly , Volume 91 , Issue Sum , Pages 19-50

Journal Article
Implications of the capital-embodiment revolution for directed R&D and wage inequality

Economic Quarterly , Volume 89 , Issue Fall , Pages 25-50

Working Paper
Productivity, employment, and inventories

Marshall made at least four contributions to the classical quantity theory. He endowed it with his Cambridge cash-balance money-supply-and-demand framework to explain how the nominal money supply relative to real money demand determines the price level. He combined it with the assumption of purchasing power parity to explain (i) the international distribution of world money under metallic standards and fixed exchange rates, and (ii) exchange rate determination under floating rates and inconvertible paper currencies. He paired it with the idea of money wage and/or interest rate stickiness in ...
Working Paper , Paper 04-09

Working Paper
Aggregate Implications of Changing Sectoral Trends

We find disparate trend variation in TFP and labor growth across major U.S. production sectors over the post-WWII period. When aggregated, these sector-specific trends imply secular declines in the growth rate of aggregate labor and TFP. We embed this sectoral trend variation into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital induces important network effects from production linkages that amplify the consequences of changing sectoral trends on GDP growth. Thus, in some sectors, changes in TFP and ...
Working Paper , Paper 19-11

Working Paper
Technical appendix for \\"Frictional wage dispersion in search models: a quantitative assessment\\"

In this Technical Appendix to Hornstein, Krusell, and Violante (2006) (HKV, 2006, hereafter) we provide a detailed characterization of the search model with (1) wage shocks during employment and (2) on-the-job search outlined in Sections 6 and 7 of that paper, and we derive all of the results that are only stated in HKV (2006). In particular, we derive the expressions for our preferred measure of frictional wage inequality: the ratio of average wages to the reservation wage, or, the `mean-min' wage ratio.
Working Paper , Paper 06-08

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