In a simple New Keynesian model, we derive a closed form solution for the inflation-gap persistence parameter as a function of the policy weights in the central bank’s Taylor rule. By estimating the time-varying weights that the FED attaches to inflation and the output gap, we show that the...

This paper addresses the classic question: what are the welfare costs of inflation. We employ a model in which the ratios of currency to deposits and currency to reserves are endogenously determined. The model distinguishes quantitatively between three sources of welfare cost of inflation, and...

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical applications--starting with the original Phillips (1958)...

We analyze the influence of the fiscal position on the transmission of government spending shocks in a New Keynesian model. We find that once we allow for positive levels of government debt in the steady state, the size of the fiscal multiplier depends strongly on the horizon at which the...

This paper extends a standard New Keynesian model to describe the effects of anticipated shocks to inflation and forward-looking monetary policy. Using the data generated from this modified model suggests that overlooking these two factors in the standard Cholesky structural vector...

Does time-varying business volatility affect the price setting of firms and thus the transmission of monetary policy into the real economy? To address this question, we estimate from the firm-level micro data of the German IFO Business Climate Survey the impact of idiosyncratic volatility on the...