business cycles

Almost all markets have slack: idle or unemployed workers, unsold goods, empty rooms or seats. This book develops a theory of economic slack and explores how it shapes markets, business cycles, and policies.

This paper develops an algorithm that detects US recessions early and accurately by optimally filtering and combining unemployment and vacancy data. As of September 2025, the algorithm estimates a 64% probability that the US economy has entered a recession.

This paper develops the Michez rule, a fast and robust method to detect US recessions using data on unemployment and job vacancies. In December 2024, the rule gives a recession probability of 27%; this recession risk was first detected in March 2024.

This paper explains why a wave of in-migration reduces the employment rate of local workers, and why this reduction is larger in bad times. Yet, when the labor market is inefficiently tight, in-migration improves local welfare because it aids firms in recruiting.

This paper builds a Beveridgean model of the Phillips curve. Prices respond to slack so the divine coincidence holds: prices are stable at full employment. The Phillips curve is kinked if wage cuts are more costly to producers than price hikes.

This paper finds that in the United States the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates. Between 1930 and 2024, the FERU averages 4.1% and is very stable.

This paper develops a policy-oriented business-cycle model with fluctuating unemployment and long zero-lower-bound episodes. The innovations are that producers and consumers meet through a matching function, and wealth enters the utility function.

This paper develops a sufficient-statistic formula for the unemployment gap. The formula depends on the elasticity of the Beveridge curve, cost of unemployment, and recruiting cost. In the United States the unemployment gap is countercyclical and often positive.

This paper shows that when unemployment is inefficient, optimal public expenditure deviates from the Samuelson rule to reduce the unemployment gap. Optimal stimulus spending depends on the unemployment gap, unemployment multiplier, and an elasticity of substitution.

This paper explores how the optimal generosity of unemployment insurance varies over the business cycle in the United States. It finds that the optimal replacement rate is countercyclical, just like the actual replacement rate.

This paper develops a model of unemployment fluctuations. The innovation is to represent the labor and product markets with a matching structure. The model simultaneously features Keynesian unemployment, classical unemployment, and frictional unemployment.

This paper develops a New Keynesian model in which the government multiplier doubles when the unemployment rate rises from 5% to 8%. The multiplier is so countercyclical because in bad times, on the labor market, job rationing dwarfs matching frictions.

This paper proposes a matching model of the labor market with job rationing: unemployment does not disappear in the absence of matching frictions. In recessions, job rationing drives the rise of unemployment, whereas matching frictions contribute little to it.