One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed...

Does a higher real interest rate induce significant postponement of consumption? According to the theory developed here, this question can be answered by studying the relation between the rate of growth of consumption and expected real interest rates. In postwar data for the United States,...

This paper sets forth a simple general structural model of aggregate output, the interest rate, and the price level. The core of the model is the determination of the level of output as a product-market equilibrium, either competitive or oligopolistic, possible indeterminate because of...

Sir John Hick's Value and Capital provided the theoretical foundation for an important element of modern macroeconomics. Intertemporal substitution - deferral or acceleration of economic activity in response to the real interest rate and other incentives - is the mechanism generally relied upon...

Macroeconomic research on consumption has been influenced profoundly by rational expectations. First, rational expectations together with the hypothesis of constant expected real interest rates implies that consumption should evolve as a random walk. Much of the research of the past decade has...

This paper discusses nominal income targeting as a possible rule for the conduct of monetary policy. We begin by discussing why a rule for monetary policy may be desirable and the characteristics that a good rule should have. We emphasize, in particular, three types of nominal income targets,...

The immediate effect of Friedman's 1968 AEA presidential address on the economics profession was the introduction of an adaptive term in the Phillips curve that shifted the curve, as Friedman proposed, based on expected inflation. Initial formulations suggested that the shift was less than...

Today, all major central banks pay or collect interest on reserves, and stand ready to use the interest rate as an instrument of monetary policy. We show that by paying an appropriate rate on reserves, the central bank can pin the price level uniquely to a target. The essential idea is to index...

Since 2008, the central banks of advanced countries have borrowed trillions of dollars from their commercial banks in the form of interest-paying reserves and invested the proceeds in portfolios of risky assets. We investigate how this new style of central banking affects central banks'...