The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

This paper studies a simple New-Keynesian model of fiscal and monetary policy coordination when the policymaker acts under commitment. With a New Keynesian Phillips curve it is optimal to control inflation only through the use of monetary policy. But, when price-setters use a Steinsson (2003)...

This Paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call ‘frictional growth’, i.e. the interaction between money growth and...

This paper integrate microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of...

The European Central Bank has assigned a special role to money in its two pillar strategy and has received much criticism for this decision. In this paper, we explore possible justifications. The case against including money in the central bank's interest rate rule is based on a standard model...

This paper surveys the research in the past decade on imperfect information models of aggregate supply and the Phillips curve. This new work has emphasized that information is dispersed and disseminates slowly across a population of agents who strategically interact in their use of information....

This paper estimates the NAIRU (standing for the Non-Accelerating Inflation Rate of Unemployment) as a parameter that varies over time. The NAIRU is the unemployment rate that is consistent with a constant rate of inflation. Its value is determined in an econometric model in which the inflation...

The present Paper provides an overview of recent developments in the analysis of monetary policy in the presence of nominal rigidities. The Paper emphasizes the existence of several dimensions in which the recent literature provides a new perspective on the linkages among monetary policy,...

This article complements the structural New-Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro-model with unobservable processes for the inflation target and the natural rate of output which are filtered...

This paper investigates the sources of the widely noticed reduction in the volatility of American business cycles since the mid 1980s. Our analysis of reduced volatility emphasizes the sharp decline in the standard deviation of changes in real GDP, of the output gap, and of the inflation rate....