Much of the new growth literature stresses country characteristics, such as education levels or political stability, as the dominant determinant of growth. However, growth rates are highly unstable over time, with a correlation across decades of .1 to .3, while country characteristics are...

This paper considers the problem of optimal long run monetary policy. It shows that optimal inflation policy involves trading off two quite different considerations. First, increases in the rate of inflation tax the holding of many balances, leading to a deadweight loss as excessive resources...

It is often argued that the most important costs of inflation can be substantially mitigated by indexing reforms. Yet governments in moderate inflation countries have generally been very reluctant to promote institutional changes that would reduce the costs of inflation. Capital income continues...

At a minimum, they suggest that policies may need to become more aggressive, both ex-ante and ex-post, with a rebalancing of the roles of monetary, fiscal and financial policies. In particular, while low neutral rates decrease the scope for using monetary policy, they increase the scope for...

Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased...

This paper examines the interactions between tax policy, international capitol mobility, and international competitiveness. It demonstrates that tax policies which stimulate national investment without affecting national savings must inevitably lead to deterioration in a country's trade balance...

This paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on...