We analyze the microfoundations of the Phillips curve and the close links between that relationship and results concerning optimal monetary policy, stabilisation bias and monetary policy delegation. Most recent literature has used a New Keynesian Phillips Curve based on Calvo pricing, often with...

We analyse the derivation of optimal monetary policy under discretion and commitment when lagged expectations appear in the Phillips curve, making use of the comparatively simple MSV approach which does not require transformation of the model into state-space form.

The paper presents a monetary policy model with an endogenous capital stock when a backward looking element in wage setting causes inflation persistence. We analyse how the endogeneity of the capital stock changes the macroeconomic dynamics with which policy interacts and its implications for...

In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk.  This is unlikely to be the case in OLG economies, where the equilibrium interest rate may differ from the policy-maker's rate...

 This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats the conditional uncertainty about the consumption and dividends next period as ambiguous. We calibrate the agent's...

There is widespread disagreement about the role of housing wealth in explaining consumption.  This paper exploits liquid and illiquid wealth time series from household balance sheet data for South Africa, previously constructed by the authors, to explain fluctuations in the ratios of...

This paper characterises the dynamic behaviour of a growing economy where individuals `keep up with the Joneses` and face uninsurable labour income risk. Idiosyncratic uncertainty about future labour income reduces the marginal propensity to consume out of financial wealth and raises the...

In many countries, house prices are subject to boom/bust cycles and in some these are linked to severe economic and financial instability.  Overheating can have both a price and a quantity dimension, but it is likely that they are linked by common drivers.  However, much depends on the...

This paper derives closed-form and numerical solutions for relative risk aversion in a standard consumption-based model enriched with housing.  The presence of housing enables the household to hedge against unexpected shocks and may decrease relative risk aversion.  In addition, housing may...

Consumer leverage can generate financial crises characterized by increased bankruptcy, tightened credit access and reduced demand for goods.  This paper embeds financial frictions in the mortgage contracts of homeowners within a two-sector economy to show that even at moderate initial levels,...