The authors’ model, embodying moderate amounts of nominal rigidities, accounts for the observed inertia in inflation and persistence in output. The key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these...

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our...

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under which will it have the opposite effects? The authors answer these questions in a general class...