This paper develops and estimates a stochastic general equilibrium model with capital maintenance, which affects endogenously the depreciation rate of capital. The estimate of maintenance series is found to track survey-based measures for Canada quite closely and to generate the procyclical pattern of maintenance observed in the data. We use it to infer the time profile of equipment capital depreciation in Canadian and US manufacturing. Contrary to existing estimates, the depreciation rate is estimated to be volatile and highly procyclical over the last 50 years in both countries. JEL classification: E22, E32, E37.

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This paper investigates the role of …scal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumption, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also …nd that, in spite of their potentially strong e¤ects, …scal policies were substantially muted during the EMU years. This result is con…rmed even for the post 2007 period. In fact …scal policies did not complement the monetary policy stimulus in response to the …nancial crisis. Further, we cannot detect any substantial aggregate e¤ect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.

We estimate a medium‐scale dynamic stochastic general equilibrium model for the Euro area with limited asset market participation (LAMP). Our results suggest that in the recent European Monetary Union years LAMP is particularly sizable (39% during 1993–2012) and important to understand business cycle features. The Bayes factor and the forecasting performance show that the LAMP model is preferred to its representative household counterpart. In the representative agent model the risk premium shock is the main driver of output volatility in order to match consumption correlation with output. In the LAMP model this role is played by the investment‐specific shock, because non‐Ricardian households introduce a Keynesian multiplier effect and raise the correlation between consumption and investments. We also detect the contractionary role of monetary policy shocks during the post‐2007 years. In this period consumption of non‐Ricardian households fell dramatically, but this outcome might have been avoided by a more aggressive policy stance. (JEL C11, C13, C32, E21, E32, E37)