Essays on dynamics of output and prices

This dissertation investigates dynamics of output and prices in five essays. First essay contrasts the Mankiw-Reis sticky information model with the standard sticky price model. I utilize a theoretical relation between aggregate prices and unit labor cost that allows us to leave unspecified household preferences, wage setting and money demand. I propose a single-step estimation method that provides consistent estimates of adjustment speeds and reliable confidence bands. A formal statistical comparison of the two models favors the sticky price model.; Second essay adds to the literature on the evaluation of how well DSGE simulated data reproduce the dynamic features of actual historical data. I do this in conjunction with the evaluation of a variety of new Keynesian DSGE models. I use a distribution based approach for comparing all of our (possibly) misspecified DSGE models. For a standard level of stickiness, I find that the sticky price model with indexation dominates.; Third essay investigates the volatility moderation of U.S. GDP in the early 1980's. I decompose the volatility decline into a common stochastic trend, common transitory component and idiosyncratic components. I find that the moderation of business cycle was a result of the moderation in transitory and idiosyncratic components.; Fourth essay analyzes two questions: (i) the effect of monetary policy shock on business cycle and (ii) the extent to which a shift in a monetary policy affects the dynamics of business cycle. I measure the cycle movements by calculating an index from a number of aggregate macroeconomic series. I find that monetary policy shocks have a small but significant impact on persistent and transitory parts of the cycle.; There is now considerable evidence that business cycle variation in output in the U.S. differs in expansions and contractions. In the last essay I examine 18 manufacturing sectors to identify whether the source of the asymmetry is from the demand or supply side. I find two leading indicators, consumer expectations and the term spread, act as important demand driven forces behind asymmetry. Cross sectional analysis, using firm level data, shows that bankruptcy risk and inventory holdings make firms more likely to be asymmetric.