We investigate optimal consumption, asset accumulation and portfolio decisions in a realistically calibrated life-cycle model with flexible labor supply. Our framework allows for wage rate uncertainly, variable labor supply, social security benefits and portfolio choice over safe bonds and risky...

Fiscal policy in the U.S. and other countries renders intertemporal budgets non-differentiable, nonconvex, and discontinuous. Consequently, assessing work and saving responses to policy requires global optimization. This paper develops the Global Life-Cycle Optimizer (GLO), a stochastic...

The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage-setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade....

This paper is a highly selective review of our knowledge about the scope for sterilized intervention in foreign exchange markets under alternative exchange-rate regimes. Section I demonstrates the potential importance of simultaneous-equations bias in single-equation econometric studies of the...

This note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period. This proposition, often called the "Fisher open" hypothesis or the...

Policy rules that are consistent with inflation targeting are examined in a small macroeconomic model of the US economy. We compare the properties and outcomes of explicit instrument rules' as well as targeting rules.' The latter, which imply implicit instrument rules, may be closer to actual...

We reexamine several bodies of data on the growth of output, labor, and capital, within the context of a model that admits the possibility of an externality to the capital input. The model is an augmented version of Paul Romer's (1987) reformulation of the Solow model. Unlike Romer, however, we...

Techniques of regulated Brownian motion are used to analyze the behavior of the exchange rate when official policy reaction functions are subject to future stochastic changes. We examine exchange-rate dynamics in alternative cases where the authorities promise (i) to confine a floating rate...