This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short run and flexible in the long run. Policy is evaluated by how well it raises the...

Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of...

After the economic reforms that followed the National Revolution of the 1950s, Bolivia seemed positioned for sustained growth. Indeed, it achieved unprecedented growth from 1960 to 1977. The rapid accumulation of debt due to persistent deficits and a fixed exchange rate policy during the 1970s...

When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent...

The move from traditional to open-access journals--which charge no subscription fees, only submission fees--is gaining support in academia. We analyze a two-sided-market model in which journals cannot commit to subscription fees when authors (who prefer low subscription fees because this boosts...

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest, severely hurt their growth performance. In our model, the...

We study the transmission of monetary policy in credit economies where money serves as a medium of exchange. We find that--in contrast to current conventional wisdom in policy-oriented research in monetary economics--the role of money in transactions can be a powerful conduit to asset prices and...

In this paper I analyze the work on exchange rates and external imbalances by University of Chicago faculty members during the university's first hundred years, 1892-1992. Many people associate Chicago's views with Milton Friedman's advocacy for flexible exchange rates. But, of course, there was...