for their comments. We thank Bence Bardoczy and Laura Murphy for excellent research assistance. 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 They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers. (JEL E12, E13, E52, E62)

We argue that the vast bulk of movements in aggregate real economic activity during the Great Recession were due to Önancial frictions interacting with the zero lower bound. We reach this conclusion looking through the lens of a New Keynesian model in which Örms face moderate degrees of price rigidities and no nominal rigidities in the wage setting process. Our model does a good job of accounting for the joint behavior of labor and goods markets, as well as ináation, during the Great Recession. According to the model the observed fall in total factor productivity and the rise in the cost of working capital played critical roles in accounting for the small size of the drop in ináation that occurred during the Great Recession.

IN THE MAIN TEXT we emphasize the role of wage inertia in helping our model account for labor market dynamics. The role of wage inertia in labor market dynamics is the subject of some controversy in the literature. For example, Hall (2005), Shimer (2005, and Hall and Milgrom (2008) argue that wage inertia is important. In contrast, Hagedorn and Manovskii (2008) and Ljungqvist and Sargent (2015) challenge that view. In this appendix we clarify the relationship between our findings and the literature.In the first two subsections we focus on the steady state response of labor market tightness to a change in steady state labor productivity, η Γ ϑ . We develop a decomposition of η Γ ϑ that isolates the role of wage inertia. In the first subsection we compare a model with extreme wage inertia (i.e., a constant wage) with a Nash bargaining model. In the second subsection we assess the role of wage inertia in the Nash and AOB models. We find that the value of η Γ ϑ is lower in the Nash model than it is in the AOB and constant wage models. Our decomposition indicates that this finding reflects the effects of wage inertia.The third section considers the relationship between steady state and dynamic analyses. There we show that steady state analysis can be very misleading for the dynamics of models like ours. There is no good substitute for analyzing dynamic impulse response functions in such models. A.1. The Potential for Wage Inertia to Resolve the Volatility PuzzleTo understand the role of wage inertia it is useful to consider the steady state of our model. The latter is characterized by a particular recursive structure. The capital-labor ratio and ϑ are determined by equations of the model that do not involve the labor market. Given ϑ, the steady state value of l is determined by the equations describing the labor market.The free entry condition and the bargaining equation, play a central role in the equilibrium conditions of the model. Making use of the relationship between the vacancy filling probability, Q, and market tightness, Γ , given by Q = σ m Γ −σ

The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people cut back on consumption and work to reduce the chances of being infected. These decisions reduce the severity of the epidemic but exacerbate the size of the associated recession. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the United States.

Monetary DSGE models are widely used because they fit the data well and they can be used to address important monetary policy questions. We provide a selective review of these developments. Policy analysis with DSGE models requires using data to assign numerical values to model parameters. The chapter describes and implements Bayesian moment matching and impulse response matching procedures for this purpose.