Paul Krugman’s essay “Who Was Milton Friedman?” seriously mischaracterizes Friedman’s economics and his legacy. In this paper we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman’s impact...

We study the interaction of multiple large economies in dynamic stochastic general equilibrium. Each economy has a monetary policymaker that attempts to control the economy through the use of a linear nominal interest rate feedback rule. We show how the determinacy of worldwide equilibrium...

We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made un- der imperfect information about aggregate demand, optimal decisions based on sentiments can generate stochastic...

Structural vector autoregression (SVAR) models are commonly used to investigate the effect of structural shocks on economic variables. The identifying restrictions imposed in many of these exercises have been criticized in the literature. This paper extends this literature by showing that if the...

A number of studies have documented a reduction in aggregate macroeconomic volatility beginning in the early 1980s. Using an empirical model of business cycles, we extend this line of research to state-level employment data and find significant heterogeneity in the timing and magnitude of the...

We study macroeconomic systems with forward-looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule. A typical finding in the burgeoning literature in this area is that policymakers should be relatively...