To match the stylised facts of goods and labour markets, the canonical New Keynesian model augments the optimising neoclassical growth model with nominal and real rigidities. We ask what the implications of this type of model are for asset prices. Using a second-order numerical solution to the...

We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor—changes in the federal funds rate target—and find that they are not. Instead, we find that two...

This paper proposes a methodolgy to estimate structural macroeconomic models including non-stationary steady state dynamics. Using a transitory-permanent decomposition of the Euler equations, the method first solves for the transitory dynamics and subsequently provides the solution for the full...

The Fed closely monitors the stock market and the stock market continuously forms expectations about the Fed decisions. What does this imply for the relation between the fed funds rate and the S&P500? We find that the answer depends on the conditions prevailing on the financial market. During...

We argue that the fiscal policies adopted early in World War I by the U.K. were responsible for its poor economic performance during the interwar period. In September 1915, the U.K. embarked on a set of non-tax-smoothing policies collectively known as the McKenna rule. The key dictum of the...

This paper shows that the recent literature that tests for a long-run Fisher relationship using cointegration analysis is seriously flawed. Cointegration analysis assumes that the variables in question are I(1) or I(d) with the same d. Using monthly post-war U.S. data from 1959-1997, we show...

This paper considers the behavior of the exchange rate in a very simple artificial currency market with two currencies and artificial agents who evolve their forecast rules over time via a genetic algorithm. I consider two simple forecast rules, one linear and the other non-linear. Under the...

Alvarez and Jermann (2000) show that the constrained efficient allocations of endowment economies with complete markets and limited commitment can be decentralized with endogenous borrowing limits on the Arrow securities. In a model with capital accumulation, aggregate risk and competitive...

Remittance flows are quickly surpassing private capital flows and official aid in magnitude and rate of growth, making them the single most important form of income flows into developing and emerging economies. This paper uses a stochastic dynamic general equilibrium model to investigate the...

This paper asks the question of whether the newly available TIPS yields data can help us achieve a better understanding of the real term structure and the inflation expectations. The yield differential between TIPS and comparable nominal coupon securities is not a direct measure of inflation...