Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest severely hurt their growth performance. In our model, the effects of taxation on growth are highly nonlinear. Low tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.

Job polarization refers to the shrinking share of employment in middle-skill, routine occupations experienced over the past 35 years. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions despite recoveries in aggregate output. We show how these two phenomena are related. First, essentially all employment loss in routine occupations occurs in economic downturns. Second, jobless recoveries in the aggregate can be accounted for by jobless recoveries in the routine occupations that are disappearing.

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in cyclical volatility observed in the G7. Since World War II, these countries have experienced dramatic demographic changes, although details regarding timing and nature differ across countries. We exploit this variation to show that the workforce age composition has a large and significant effect on cyclical volatility. We relate our results to the recent decline in US macroeconomic volatility, finding that demographic change accounts for approximately one-fifth to one-third of this moderation.

We assess the importance of nominal rigidities using a new weekly scanner dataset. We find that nominal rigidities take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly once every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in prices. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis.

Over the business cycle young workers experience much greater volatility of hours worked than prime-aged workers. This can arise from age differences in labor supply or labor demand characteristics. To distinguish between these, we document that, for young workers, both the cyclical volatilities of hours and wages are greater than those of the prime-aged. We argue that a general class of models featuring only age-specific labor supply differences cannot reconcile these facts. We then show that a simple model featuring labor demand differences can.

We examine the mechanisms driving the aggregate and distributional impacts of Universal Basic Income (UBI) through model analysis of various UBI programs and financing schemes. The main adverse effect is the distortionary tax increase to fund UBI, reducing labor force participation. Secondary channels are a decline in demand for self-insurance, depressing aggregate capital, and a positive income effect that further deters labor force participation. Due to these channels, introducing UBI alongside existing social programs reduces output and average welfare. Partially substituting existing programs with UBI mitigates the adverse effects, increases average welfare, but does not deliver a Pareto improvement.

A leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices. Using a unique database of cost and retail price changes, we find that variation in menu costs results in up to 13.3% fewer price increases. We confirm that these effects are allocative and have a persistent impact on both prices and unit sales. We provide evidence that the menu cost channel operates only when cost increases are small in magnitude, which is consistent with theory and provides the first empirical evidence of boundary conditions.

We investigate the role of uncertainty in business cycles. First, we demonstrate that microeconomic uncertainty rises sharply during recessions, including during the Great Recession of 2007–2009. Second, we show that uncertainty shocks can generate drops in gross domestic product of around 2.5% in a dynamic stochastic general equilibrium model with heterogeneous firms. However, we also find that uncertainty shocks need to be supplemented by first†moment shocks to fit consumption over the cycle. So our data and simulations suggest recessions are best modelled as being driven by shocks with a negative first moment and a positive second moment. Finally, we show that increased uncertainty can make first†moment policies, like wage subsidies, temporarily less effective because firms become more cautious in responding to price changes.