Thesis advisor: Susanto Basu / This dissertation examines the fluctuations of the aggregate economy when frictions in financial markets are present. I focus on the the asymmetric information problems between creditors and debtors on the quality of debtor's projects and I analyze how these frictions cause the fluctuations in aggregate economy which is potentially inefficient. The first chapter examines the interaction between the perverse incentives and the general equilibrium effects of misallocated bank credit. This essay is intended to elucidate the mechanism of zombie lending in Japan. By incorporating a soft budget problem into a neo-classical dynamic general equilibrium model, the model shows that an inefficient zombie lending regime can be selected as an equilibrium. In this equilibrium, the incentives and the general equilibrium effects are interdependent. The inefficient use of resources crowds out investment when banks have incentives to bail out insolvent firms. On the other hand, the general equilibrium effects give rise to the perverse incentives endogenously through the formation of the liquidation value and the continuation value of insolvent firms. In the worst case, agents fail to resolve non-performing loan problems, and the model economy permanently falls into an inefficient regime. The second chapter proposes a model that generate boom-and-bust cycles by securitization of subprime mortgages. I construct a dynamic housing choice model in which mortgages are financed by securitization and I assume that creditors have errors in measuring the default risks of subprime mortgages. With this setup, the resource availability for housing fluctuates endogenously and it causes the boom-and-bust cycles. Particularly, there are two channels that change the resource availability: the security design of the securitized assets and the evolution of house price inflation. I illustrate that subprime mortgages can be cheaply financed by securitization when creditors mismeasure the quality of the subprime mortgages. This ignites a boom in the model. However, the boom can be terminated as the profitability of securitization declines along with the decline in the expectation of house price inflation. This is because the house price inflation is tied with the liquidation value of the defaulted mortgages. As the expectation of the house price inflation slows down, the subprime mortgages become more risky and the securitization becomes less profitable. Eventually, issuers of securitized assets withdraw from the securitization market and the boom collapses. The last chapter explores the transmission mechanisms of international business cycles when the borrowing capacity of multinational enterprises (MNEs) is limited. I embed MNEs that face borrowing constraints in a two-country international business cycle model. I show that the net worth of MNEs plays a significant role in generating the international business cycle co-movement: the wealth effect in response to the change in MNEs' net worth has a strong multiplier effect on domestic and foreign investment of MNEs. Output moves in the same direction between the two countries due to the synchronized investment. The model is also able to generate reasonable cross-country correlations in real estate price and consumption. / Thesis (PhD) — Boston College, 2010. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Esse trabalho faz um estudo sobre a hipótese de descolamento das relações de curto e longo prazo entre os PIBs das economias brasileira e norte-americana. Para isso, é realizado, inicialmente, uma análise da literatura existente sobre a possível mudança nas relações entre as economias emergentes e avançadas. Em seguida, foram apresentadas explicações teóricas para as ligações entre os PIBs de Brasil e dos Estados Unidos da América. As metodologias usadas na investigação foram a análise de cointegração e a decomposição dos produtos internos brutos dos países em questão. Os principais resultados, obtidos usando dados anuais entre 1980 e 2008, apontam para uma mudança importante nas relações de longo prazo entre as economias a partir da década de 1980 e uma intensificação das relações de curto prazo a partir da década de 1990. No entanto, ao longo dos anos e, principalmente a partir da metade da década de 2000, foram encontradas evidências em favor de um maior descolamento de curto prazo dos PIBs de Brasil e EUA. / The following dissertation tests the hypothesis of decoupling between the Brazilian and North American economies. For this purpose, the related literature is initially investigated. Afterwards, theoretical explanations on the links between the GDPs of Brazil and USA are shown. The methodologies employed were cointegration analysis and trend/cycle decomposition of the GDPs of the mentioned countries. The main findings using annual data between 1980 and 2008 point out to an important change in the long term relationship between the economies starting in the 1980s and an increase in the short-run links during the 1990s. However, there is evidence suggesting a decoupling of the short term fluctuations between Brazils and USAs GDPs starting in the second half of the 2000s.

Trata-se de uma pesquisa teórica e de campo, com o objetivo de analisar as práticas de recuperação que foram implantadas nas escolas estaduais paulistas, como resultado da opção pelo regime de progressão continuada e da organização do ensino fundamental em ciclos a partir de 1998. O objetivo central de nosso trabalho foi o de caracterizar a concepção das práticas de recuperação na Lei de Diretrizes e Bases nº 9394/96 e como as mesmas foram regulamentadas no Estado de São Paulo, por meio do Conselho Estadual de Educação de São Paulo e da Secretaria da Educação do Estado de São Paulo. Não obstante, as práticas de recuperação se vinculam sempre a um posicionamento político e a uma opção por determinados valores e princípios que norteiam a avaliação escolar. Longe de representar um aspecto apenas técnico do cotidiano escolar, a avaliação envolve esferas muito mais amplas e complexas, já que se apóia em orientações legais (legislação federal e estadual) que, por sua vez, espelham fundamentações teóricas que lhes apontam diretrizes. O desenvolvimento deste trabalho de pesquisa acompanhou um período de sucessivas transformações em relação ao sistema de avaliação e às práticas de recuperação nas escolas de 1ª a 4ª série da rede pública estadual de São Paulo. Embora a Lei nº 9394/96 continue a representar a orientação legal mais ampla para as práticas de recuperação em nível federal, o Parecer CEE/SP nº 67/98, a Resolução SE 05/98 e a Resolução SE 06/08 (alterada pela Resolução 26/08) representam indicadores legais estaduais paulistas sobre as práticas de recuperação que revelam aspectos vitais para o entendimento do sistema de recuperação que tem vigorado em nossas escolas. Além da análise da legislação federal e estadual que apóia as atividades de recuperação nas escolas estaduais, aplicamos um questionário a trinta professores da rede pública estadual de São Paulo sobre as práticas de recuperação no regime de progressão continuada. O conjunto de dados obtidos permitiu concluir que a maioria dos professores considera que houve mudanças significativas na organização da escolarização em ciclos, principalmente porque afasta o fantasma da repetência (63%), mas 37% se declararam contra a recuperação no sistema de ciclos por considerar que não há respaldo suficiente aos professores para trabalhar com as práticas de recuperação e que o tempo que antecede a recuperação ao final de ciclo é longo demais (quatro anos). / It is a theorical and field-work research, which has the aim to annalyse the revision classes that were implanted in the public schools of the State of São Paulo as result of the option for the continuous promotion and the new organization of primary school that happened in 1998. The central objective of this work was the characterization of the conception of the revision classes in Leis de Diretrizes e Bases (LDB -Guidelines and Bases Act of Education)-, Law n. 9394/96 and how it was regulated in the State of São Paulo, by the Conselho Estadual de Educação de São Paulo (CNE - Brazilian Council for Education) and by the Secretaria da Educação do Estado de São Paulo (State Secretariat of Education of São Paulo). Nevertheless, the practice of revision classes are always linked to a political position and to an option for some values and principles that structure the educational evaluation. The intention is not only represent the technical aspect; the educational evaluation involves more complexes questions because of the fact that is based in legal orientation (federal and state legislation) that revels theorycal fundaments of the guidelines. The development of this research followed a period of transformations in the relation of education evaluation system and the revision classes in the 1st to 4th grades in the public schools of the state of São Paulo. Although the Law nº 9394/96 continues to represent a broaden legal orientation to the revision in the federal level, the resolutions Parecer CEE/SP nº 67/98, a Resolução SE 05/98 e a Resolução SE 06/08 (modified by Resolução 26/08) represent state legal indicators about the revision classes, which revels vital aspects for the understanding of revision classes system existent in our schools. Besides the analyze of the federal and state legislation that supports the revision activities in the state schools, we collected data of 30 teachers using a questionnaire about the revision classes in the universe of continuous promotion. The data we have obtained permitted conclude that the large majority of teachers consider that it had important changes in the organization in cycles. It hides the ghost of repeater (63%), but 37% declare themselves against the revision classes in the system of cycles owing to the fact that there is no sufficient base for the teachers to work with the repetition practice and that the time that occurs before the recuperation in the end of the cycle is too long (four years).

Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and goods prices. A typical model is static and combines wage bargaining in the labour markets and monopolistic competition in the goods markets. As central policy implication it follows that deregulating labour and/or goods markets increases equilibrium employment. We reassess the consequences of deregulation in a dynamic model. It still increases employment at the fixed point, which corresponds to the static equilibrium solution. However, deregulation may also lead to stability loss and endogenous fluctuations. / Series: Working Papers Series "Growth and Employment in Europe: Sustainability and Competitiveness"

Os principais objetos de estudo neste trabalho são os números de Ramsey para circuitos e o lema da regularidade de Szemerédi. Dados grafos $L_1, \\ldots, L_k$, o número de Ramsey $R(L_1,\\ldots,L_k)$ é o menor inteiro $N$ tal que, para qualquer coloração com $k$ cores das arestas do grafo completo com $N$ vértices, existe uma cor $i$ para a qual a classe de cor correspondente contém $L_i$ como um subgrafo. Estaremos especialmente interessados no caso em que os grafos $L_i$ são circuitos. Obtemos um resultado original solucionando o caso em que $k=3$ e $L_i$ são circuitos pares de mesmo tamanho. / The main objects of interest in this work are the Ramsey numbers for cycles and the Szemerédi regularity lemma. For graphs $L_1, \\ldots, L_k$, the Ramsey number $R(L_1, \\ldots,L_k)$ is the minimum integer $N$ such that for any edge-coloring of the complete graph with~$N$ vertices by $k$ colors there exists a color $i$ for which the corresponding color class contains~$L_i$ as a subgraph. We are specially interested in the case where the graphs $L_i$ are cycles. We obtained an original result solving the case where $k=3$ and $L_i$ are even cycles of the same length.

Esta pesquisa é resultado da minha inquietação e do desconforto produzido ao longo dos últimos anos de atuação no magistério público, levando-me a questionar as hipóteses elaboradas e as finalidades identificadas na construção dos caminhos que culminaram na adoção do sistema de ciclos com progressão continuada implantado no Ensino Fundamental na Rede Pública de Ensino do Estado de São Paulo. Tendo como base tal inquietação, o objetivo deste trabalho é compreender melhor tal elaboração assim como de que maneira a ausência de novos métodos, estratégias e instrumentos de avaliação pode ser vista como possível fator presente na manutenção do baixo desempenho e na iminente possibilidade de fracasso na disciplina de Matemática ou de que forma estes assuntos se inter-relacionam. Considerando que os processos de construção (métodos) e de utilização dos instrumentos de avaliação sempre foram vistos como capazes de efetuar a mediação entre a \"medição do desempenho escolar\" (atribuição de conceitos ou notas) e a \"capacidade de apropriação de conhecimento\" por parte do aluno (sucesso ou fracasso na disciplina); sinto-me confiante em propor que os processos de construção e utilização dos instrumentos de avaliação podem ser postos como o foco principal de uma pesquisa. / This research results from my discomfort and uneasiness grown, during the last years, by my experience as a Math teacher in a public school. Such preoccupation led me to question the hypotheses elaborated and finalities in the construction of the paths that culminated in the adoption of the system of continued progression cycles nowadays implanted in the 1st. to 8th. grades of Elementary School (Ensino Fundamental) in the Public School System of the State of São Paulo and how the lack of new methods, strategies and instruments of evaluation can be faced as a possible factor of the maintenance of the low performance and of the imminent possibility of failure in the discipline of Mathematics or how such subjects interrelate. The construction and usage processes (methods) of the evaluation instruments have always been seen as capable of mediating the \"measurement of school accomplishment\" (attribution of letter or number grades) and \"the capacity of appropriation of knowledge\" by the student (success or failure in the discipline). Therefore, the construction and usage processes of the evaluation instruments can be placed as the main focus of a research.

Li Zimu. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2006. / Includes bibliographical references (leaves 65-68). / Abstracts in English and Chinese. / Abstract --- p.ii / 中文摘要 --- p.iii / Acknowledgements --- p.iv / Contents --- p.v / Chapter Chapter 1. --- Introduction --- p.1 / Chapter Chapter 2. --- Literature Review --- p.5 / Chapter 2.1 --- Duration Dependence in Business Cycles --- p.5 / Chapter 2.2 --- Duration Dependence in Stock Market Cycles --- p.7 / Chapter 2.3 --- Definition of Bull and Bear Markets --- p.10 / Chapter Chapter 3. --- Nonparametric Tests for Duration Dependence --- p.12 / Chapter 3.1 --- Duration Dependence --- p.12 / Chapter 3.2 --- Stock Market Cycle Periodicity --- p.15 / Chapter 3.3 --- W and W (t0 =a) Tests --- p.18 / Chapter 3.4 --- Z and Z (t0 =a) Tests --- p.20 / Chapter Chapter 4. --- Data Analysis --- p.21 / Chapter 4.1 --- Dow Jones Industrial Average Index --- p.23 / Chapter 4.2 --- NASDAQ Composite Index --- p.29 / Chapter 4.3 --- Shanghai A Share Index --- p.33 / Chapter 4.4 --- Shenzhen B Share Index --- p.38 / Chapter Chapter 5. --- Empirical Results --- p.42 / Chapter 5.1 --- Dow Jones Industrial Average Index --- p.45 / Chapter 5.2 --- NASDAQ Composite Index --- p.47 / Chapter 5.3 --- Shanghai A Share Index --- p.49 / Chapter 5.4 --- Shenzhen B Share Index --- p.51 / Chapter 5.5 --- Summary of Significant W and Z tests --- p.53 / Chapter Chapter 6. --- Sub-sample Analysis --- p.54 / Chapter 6.1 --- Sub-sample 1 of the Dow Jones Index´ؤ --- p.56 / Chapter 6.2 --- Sub-sample 2 of the Dow Jones Index´ؤ --- p.57 / Chapter 6.3 --- Comparison of Sub-samples of the Dow Jones Index --- p.58 / Chapter 6.4 --- Comparison of the Dow Jones Index and the NASDAQ Composite Index --- p.60 / Chapter Chapter 7. --- Conclusion --- p.62 / References --- p.65

Les conditions environnementales jouent un rôle important dans la stabilité des massifs rocheux. De fait, les variations climatiques peuvent affecter la résistance du matériau et également augmenter les contraintes internes dans le massif. Cette thèse étudie les effets des cycles thermiques atmosphériques sur les roches, dans une approche expérimentale puis numérique. Cette recherche est centrée sur le cas de la falaise de La Roque Gageac, un village du sud-ouest de la France, situé au pied d'une falaise qui présente une caverne à mi-hauteur. Cette commune a été affectée par plusieurs éboulements. Les données issues de l'instrumentation du massif montrent que ces instabilités sont liées aux cycles thermiques. Afin d'isoler l'effet des cycles thermiques dans la roche calcaire de La Roque Gageac, un programme expérimental a été mis en place. Des échantillons ont été prélevés sur deux sites de la falaise (blocs éboulés à l'intérieur de la caverne et carottés dans la face de la falaise). Ces échantillons ont été soumis à des cycles thermiques entre 10ºC et 50ºC afin de simuler les conditions enregistrées sur le site. L'endommagement de la roche est évalué en laboratoire par le suivi de mesures de déformations, de vitesses de propagation d'ondes élastiques et par l'évolution de la résistance à la compression uniaxial. Une réduction de la vitesse de propagation des ondes élastiques de compression et de cisaillement ainsi que de la résistance à la compression du matériau sont observées. De la même façon, les échantillons enregistrent une accumulation de déformations. De plus, la réponse des échantillons est influencée par la composition minéralogique de la roche. Celle-ci est liée au lieu de prélèvement, le calcaire de la falaise montrant une importante hétérogénéité. Les résultats du programme expérimental ont permis la détermination des caractéristiques principales du phénomène d'endommagement thermique. Une loi de comportement modélisant l'effet des cycles thermiques sur la roche calcaire de La Roque Gageac d'un point de vue macroscopique a été proposée. À cette fin, une loi de comportement a été développée. Elle considère la roche comme un matériau composite constitué par de deux composantes, chacune dotée de sa propre loi de comportement thermo-mécanique. Le modèle a été ensuite implémenté dans le code Éléments Finis Code_bright et utilisé pour simuler les essais de laboratoire. Les résultats fournissent, d'une part, une validation du modèle par les mesures expérimentales et, d'autre part, des éléments pour une meilleure compréhension du développement des contraintes internes et de l'endommagement des échantillons pendant les cycles thermiques. / The environmental conditions may play a relevant role in the stability of rock slopes. In fact, weathering can contribute to the reduction of strength of the material, while hydro-mechanical loading actions may induce and eventually concentrate internal stresses in the rock massif. This Ph.D. thesis deals with the effect of atmospheric thermal cycles in rocks, from both experimental and numerical point of view. This research is focused on the real case of La Roque Gageac, a small town located in the south-west of France, which experiences rock fall risk. Installed instrumentation evidenced the main role played by thermal variations in rock falls occurrence. With the aim of isolating the effect of thermal cycles in the La Roque Gageac limestone, an experimental study is performed. Samples were obtained from blocks felt and intact cores drilled from the cliff face. These samples were submitted to thermal cycles between 10ºC and 50ºC, in order to mimic natural variations. The damage induced in the samples is evaluated through measurements of strains, elastic wave propagation velocities and uniaxial compressive strength. It is observed that samples experience an accumulation in strains and a reduction in the elastic wave propagation velocity and material strength during the imposition of thermal cycles. The response depends moreover on the mineralogical composition of the rock, which varies from sample to sample, as the cliff presents a large heterogeneity. Based on the results obtained in the experimental program, principal characteristics of thermal damage have been evaluated, proposing a constitutive model capable to reproduce the macroscopic mechanical response of the rock under the applied thermal cycles. With this purpose, a constitutive model has been developed. It considers the rock as a composite material made of two components endowed each with its own thermo-mechanical behavior. The model has been further implemented in the Finite element Code_Bright and used to model laboratory tests. Results provide, on the one hand, a validation of the model by the measurements and, on the other hand, insights into a better understanding of the development of internal stress and damage inside the samples during thermal cycles

Na trajetória da economia mundial, destaca-se a importância do agronegócio, que exerce um papel essencial no desenvolvimento econômico e social dos países, devido principalmente à sua capacidade de geração de renda e empregos. Entretanto, o agronegócio possui um obstáculo para a sua sustentabilidade, que é sua natureza cíclica, sofrendo influências de vários fatores de mercado e apresentando elevada volatilidade nos preços das commodities. Nesse sentido, vê-se a necessidade de explorar o aspecto cíclico dos preços das commodities, com o intuito de captar a dinâmica dos fatores de mercado que influenciam a formação do preço, para o seu monitoramento antecipado. Dentro desse contexto, o objetivo do presente estudo foi propor o desenvolvimento de uma ferramenta para prever o comportamento dos ciclos de crescimento e retração de uma commodity, especificamente o açúcar, com base no modelo de indicador antecedente. Para isso, foi construído, primeiramente, o ciclo de preços agrícolas, com base nos ciclos de negócios e na exposição das estruturas que representam os principais fatores de alteração nos preços das commodities: econômica, fundamentalista, climática e relacionada. O próximo passo foi datar os pontos de mudança do preço do açúcar, utilizando um modelo de cadeia de Markov e confrontando seus resultados com os acontecimentos históricos do setor. Posteriormente, um modelo de fator dinâmico foi utilizado para extrair movimentos cíclicos comuns a um conjunto de variáveis que apresentam poder de previsão, fora de amostra, com relação ao preço do açúcar. Como resultado, foram encontrados três indicadores antecedentes, que sinalizaram consistentemente a maioria dos picos e vales do ciclo do preço do açúcar, num horizonte de dois anos de antecedência. Cada indicador selecionado é composto por uma combinação linear entre os coeficientes e quatro variáveis independentes, as quais representam, respectivamente, as estruturas setoriais analisadas: fundamentalista, econômica, climática e relacionada. Em seguida, os indicadores foram combinados com o preço em um vetor bivariado auto-regressivo para obter previsões lineares do preço da commodity açúcar. As previsões obtidas revelam que os indicadores apresentaram um desempenho de previsão bem superior ao do modelo base, em todos os horizontes, e muito próximo aos valores reais dos preços. Portanto, da análise de previsão de pontos de mudança e de previsão linear, conclui-se que os indicadores antecedentes da commodity açúcar (IAC) constituem-se em um instrumento informativo para sinalizar o comportamento futuro do preço do açúcar, mesmo quando apenas dados preliminares e não revisados estão disponíveis. A ferramenta proposta, além de servir como um instrumento para compreender a natureza das flutuações dos preços das commodities, pretende tornar-se fonte de subsídios para o projeto de diretrizes, ações e formulação de estratégias de desenvolvimento, tanto no âmbito das políticas públicas, quanto daquelas iniciativas que deveriam ser adotadas pelo setor privado, servindo como um instrumento essencial para o planejamento das instituições integrantes do agronegócio. / In the course of the world economy, underscoring the importance of agribusiness, which plays a key role in economic and social development of countries, mainly due to its ability to generate income and jobs. However, agribusiness has an obstacle to its sustainability, which is its cyclical nature, is influenced by various market factors and a very high volatility in commodity prices. In this sense, we see the need to explore the cyclical aspect of commodity prices, in order to capture the dynamics of market factors that influence the pricing for its monitoring anticipated. Within this context, the objective of this study was to propose the development of a tool to predict the behavior of cycles of growth and shrinkage of a commodity, specifically sugar, based on the type of leading indicator. For that was built first, the cycle of agricultural prices, based on business cycles and exposure of the structures that represent the main factors of change in commodity prices: economic fundamentalism, climate and related. The next step was dating the turning points of the price of sugar, using a model of Markov chain, comparing their results with historical events in the industry. Subsequently, a dynamic factor model was used to extract common cyclical movements in a set of variables that have predictive power, out of the sample to the price of sugar. As a result, there were three leading indicators, which signaled consistently most of the peaks and valleys of the cycle of the price of sugar, a horizon of two years in advance. Each indicator selected is composed of a linear combination of the coefficients and four independent variables, which represent, respectively, industry structures analyzed: fundamentalist, economic, climate and related. Then, the indicators were combined with the price in a bivariate vector autoregressive forecasts for linear price of crude sugar. The predictions show that the indicators showed a predictive performance far superior to the base model at all horizons, and very close to the actual values of prices. Therefore, the analysis of forecasting turning points and linear prediction, it is concluded that the leading indicators of crude sugar (IAC) is based on an informative tool for signaling future behavior of the price of sugar, even when only preliminary data not reviewed are available. The proposed tool, besides serving as a tool to understand the nature of fluctuations in commodity prices, hopes to become a source of input for the draft guidelines, actions and formulation of development strategies, both in the public policies and those initiatives that should be adopted by the private sector, serving as an essential tool for planning of institutions of agribusiness.

This dissertation combines micro-level empirical analyses and general equilibrium models to study the issues of output price, price-cost markup, and business cycle dynamics. In the first chapter, I study how a credit crunch affects output price dynamics. I build a unique micro-level dataset that combines scanner-level prices and quantities with producer information, including the producer's banking relationships, inventory, and cash holdings. I exploit the Lehman Brothers' failure as a quasi-experiment and find that firms facing a negative credit supply shock decrease their output prices approximately 15% relative to their unaffected counterparts. I hypothesize that such firms reduce prices to liquidate inventory and to generate additional cash flow from the product market. I find strong empirical support for this hypothesis: (i) firms facing a negative bank shock temporarily decrease their prices and inventory and increase their market share and cash holdings relative to their counterparts, and (ii) this effect is stronger for firms and sectors with high initial inventory or small initial cash holdings. To discuss the aggregate implications of these findings, I integrate this micro-level study into a business cycle model by explicitly allowing for two identical groups of producers facing different degrees of credit supply shock. The model predicts that a negative credit supply shock leads to a large temporary drop in aggregate inflation---as a result of the aggressive liquidation of inventory---followed by an increase in inflation as producers eventually run out of inventory. This prediction for inflation and inventory dynamics is fully consistent with observations for the 2007-09 recession. In the second chapter, I study price-cost markup cyclicality. Existing empirical evidence on price-cost markup cyclicality is mixed. I find that markups are procyclical unconditionally, and procyclical conditional on demand shock using a flexible production function. The estimated production function features a larger input complementarity than that in a tightly parametrized production function (Cobb-Douglas and CES), producing both greater efficiency and higher markups during an expansion. These results have two striking implications: (i) much of the cyclicality in markups arises from input complementarity, rather than nominal rigidity, and (ii) the U.S. economy behaves as if it has increasing returns to scale. The third chapter studies the business cycle with a Translog production function. We empirically identify a complementarity between labor and energy that leads to procyclical returns to scale, which is not compatible with the tightly parameterized production function commonly used in the literature (Cobb-Douglas and CES). We, therefore, propose a flexible Translog production function that not only features complementarity-induced procyclical returns to scale but is also consistent with a balanced growth path. A simple calibrated business cycle model with the proposed production function generates strikingly data-consistent dynamics following demand shock without relying on either nominal rigidities or countercyclical markups. Our model also produces a stronger amplification effect than the model without complementarity. We then incorporate our production function into a benchmark medium-scale New Keynesian model (Smets and Wouters 2007) and repeat the business cycle accounting exercise. We find that input complementarity leads to a more dramatic decrease in the role of ''suspicious shocks" than of ''structural shocks."