This paper provides empirical evidence on the effectiveness of movements in nominal exchange rates in smoothing cyclical imbalances between countries, as explained by the literature on optimal currency areas. We use restrictions from the Mundell-Flemming model (on which the theory of optimal...

The purpose of the present Paper is twofold. First, we characterize the Fed’s systematic response to technology shocks and its implications for US output, hours and inflation. Second we evaluate the extent to which those responses can be accounted for by a simple monetary policy rule...

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how...