The simultaneous occurrence in the second half of the 1990s of low and falling price inflation and low unemployment appears to be at odds with the properties of a standard Phillips curve. We find this result in a model in which inflation depends on the unemployment rate, past inflation, and...

Large-scale macroeconomic models have been used at the Federal Reserve Board for nearly 30 years. After briefly reviewing the first generation of Fed models, which were based on the IS/LM/Phillips curve paradigm, the paper describes the structure and properties of a new set of models. The new...

This paper describes the E-Newton and E-QNewton algorithms for solving rational expectations (RE) models. Both algorithms treat a model's RE terms as exogenous variables whose values are iteratively updated until they (hopefully) satisfy the RE requirement. In E-Newton, the updates are based on...

This paper applies some lessons from recent estimation of investment models with firm-level data to the aggregate data with an eye to rehabilitating convex costs of adjusting the capital stock. In recent firm-level work, the response of investment to output and other "fundamental" variables is...

We use simulations of the Federal Reserve's FRB/US model to examine the efficacy of a number of proposals for reducing the consequences of the zero bound on nominal interest rates. Among the proposals are: a more aggressive monetary policy; promises to make up any shortfall in monetary ease...

We look for evidence of "hysteresis" in the U.S. unemployment rate - that is, that current labor market outcomes affect the future equilibrium level of the unemployment rate. We first examine (using a variety of econometric tests for unit roots) whether the unemployment rate tends to come back...

This paper uses the response of investment to identified structural shocks to investigate some key issues, including the nature of adjustment costs and investment's responsiveness to user cost. In the estimation, the model parameters are chosen to match as closely as possible the impulse...

New Keynesian models with sticky prices and rational expectations have a difficult time explaining why reducing inflation usually requires a recession. An explanation for the costliness of reducing inflation is that inflation expectations are less than perfectly rational. To explore this...

Since the early 1980s, the United States economy has changed in some important ways: Inflation now rises considerably less when unemployment falls and the volatility of output and inflation have fallen sharply. This paper examines whether changes in monetary policy can account for these...