Central to ongoing debates over the desirability of monetary unions is a supposed trade-off, outlined by Mundell [1961]: a monetary union reduces transactions costs but renders stabilization policy less effective. If shocks across countries are sufficiently correlated, then, according to this...

The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints...

We study a dynamic version of Meltzer and Richard's median-voter analysis of the size of government. Taxes are proportional to total income, and they are used for government consumption, which is exogenous, and for lump-sum transfers, whose size is chosen by electoral vote. Votes take place...

The statistical significance of variance decompositions and impulse response functions for unrestricted vector autoregressions is questionable. Most previous studies are suspect because they have not provided confidence intervals for variance decompositions and impulse response functions. Here...

We study inferences about the dynamics of labor adjustment obtained by the "gap methodology" of Caballero and Engel [1993] and Caballero, Engel and Haltiwanger [1997]. In that approach, the policy function for employment growth is assumed to depend on an unobservable gap between the target and...

We make three comparisons relevant for the business cycle accounting approach. We show that in theory, representing the investment wedge as a tax on investment is equivalent to representing this wedge as a tax on capital income as long as the probability distributions over this wedge in the two...

The central puzzle in international business cycles is that fluctuations in real exchange rates are volatile and persistent. We quantity the popular story for real exchange rate fluctuations: they are generated by monetary shocks interacting with sticky goods prices. If prices are held fixed for...