This paper analyzes the performance of heteroskedasticity-and-autocorrelation-consistent (HAC) covariance matrix estimators in which the residuals are prewhitened using a vector autoregressive (VAR) filter. We highlight the pitfalls of using an arbitrarily fixed lag order for the VAR filter, and we demonstrate the benefits of using a model selection criterion (either AIC or BIC) to determine its lag structure. Furthermore, once data-dependent VAR prewhitening has been utilized, we find negligible or even counter-productive effects of applying standard kernel-based methods to the prewhitened residuals; that is, the performance of the prewhitened kernel estimator is virtually indistinguishable from that of the VARHAC estimator.

In this paper, we study the short-run and long-run comovement between prices and real activity in the G7 countries during the postwar period using VAR forecast errors and frequency domain filters. We find that there are several patterns of the correlation coefficients that are the same in all countries. In particular, the correlation at the "long-run" horizon is virtually always negative and the correlation at the "short-run" horizon is typically substantially higher. Although there is evidence of positive "short-run" correlations for some countries it is not very robust to the choice of the price and output variables. In addition, we propose a more efficient method to calculate the covariances of VAR forecast errors and--in contrast to claims made in the literature--we show that band-pass filters isolate the desired set of frequencies not only when the series are stationary but also when they are first or second-order integrated processes.

This paper develops a macroeconomic model in which investable assets flow to entrepreneurs through long-term relationships with lenders. Low asset flows cause relationships to brak up due to insufficient liquidity. Multiple Pareto ranked steady staes emerge from complementarity between financial intermediation, reflected by the number of relationships, and households' incentives to provide assets. This complementarity also serves as a mechanism for propagating aggregate shocks. Financial colapse may become inescapable if a shock destorys sufficiently many relationships.

This paper develops a theoretical framework for analyzing contracting imperfections in long-term employment relationships. We focus chiefly on limited enforceability and limited worker liquidity. Inefficient severance of employment relationships, payment of efficiency wages, the relative responses of wages and employment to business cycle shocks, and the propagation of these shocks are linked to the nature of contracting imperfections.

This paper develops a macroeconomic model in which investable assets flow to entrepreneurs through long-term relationships with lenders. Low asset flows cause relationships to break up due to insufficient liquidity. Multiple Pareto ranked steady states emerge from complementarity between financial intermediation, reflected by the number of relationships, and households' incentives to provide assets. This complementarity also serves as a mechanism for propagating aggregate shocks. Financial collapse may become inescapable if a shock destroys sufficiently many relationships.

This paper explains the divergent behavior of European and US unemployment rates using a job market model of the labor market with an interaction between shocks and institutions. It shows that a reduction in TFP growth rates, an increase in real interest rates, and an increase in tax rates leads to a permanent increase in unemployment rates when the replacement rates or initial tax rates are high, while no increase in unemployment occurs when institutions are "employment friendly." The paper also shows that an increase in turbulence, modelled as an increased probability of skill loss, is not a robust explanation for the European unemployment puzzle in the context of a matching model with both endogenous job creation and job destruction.

This paper evaluates a class of endogenous job destruction models based on how well they explain the observed experiences of displaced workers. We show that pure reallocation models in which relationship-specific productivity drifts downward over time are difficult to reconcile with the evidence on postdisplacement wages and displacement rates. Pure reallocation models with upward drift can explain the evidence, but implausibly large and persistent negative productivity shocks are required to generate displacements. Combining upward drift with outside benefits or moral hazard as additional motives for displacement makes it possible to explain the evidence with much smaller shocks. Propagation of aggregate shocks, welfare implications of displacement, upgrade of relationships in lieu of displacement, and learning effects are also discussed.