The paper presents empirical findings regarding the economic policy consequences of constitutional arrangements, in three different dimensions. First, the data are consistent with several theoretical predictions about the consequences of electoral rules and forms of government for fiscal policy...

This paper discusses recent economic research that demonstrates that the objectives of price stability and stabilizing economic activity are often likely to be mutually reinforcing. Thus, the answer to the title of this paper--"Does stabilizing inflation contribute to stabilizing economic...

This article reviews the literature on the cost of U.S. post-War business cycle fluctuations. I argue that recent work has established this cost is considerably larger than initial work found. However, despite the large cost of macroeconomic volatility, it is not obvious that policymakers should...

Erceg et al. (2000) show that when both wages and prices are sticky, maximization of expected utility is equivalent to minimizing a loss function with three terms, involving measures of the variability of wage inflation, price inflation and the output gap respectively. Here we generalize their...

Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. We show that even were this the case, there remains a...

Monetary policy can achieve average inflation equal to a given inflation target and, at best, a good compromise between inflation variability and output-gap variability. Monetary policy cannot completely stabilize either inflation or the output gap. Increased credibility in the form of inflation...

The COVID-19 pandemic presents a challenge for stabilization policy that is different from those resulting from either "supply" or "demand" shocks that similarly affect all sectors of the economy, owing to the degree to which the necessity of temporarily suspending some (but not all) economic...

At the zero lower bound, the central bank's inability to offset shocks endogenously generates volatility. In this setting, an increase in uncertainty about future shocks causes significant contractions in the economy and may lead to non-existence of an equilibrium. The form of the monetary...

Using a survey of households in the Nielsen Consumer Panel and the randomized timing of disbursement of the 2008 Economic Stimulus Payments, we find that a household's spending rose by ten percent the week it received a Payment and remained high cumulating to 1.5-3.8 percent of spending over...