This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is...

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these...

This paper discusses how optimal monetary policy is affected by differences in the combination of shocks an economy experiences and the rigidities it exhibits. Without both nominal rigidities and economic shocks, monetary policy would be irrelevant. Recognizing this, policymakers increasingly...

This paper makes changes in monetary policy rules (or regimes) endogenous. Changes are triggered when certain endogenous variables cross specified thresholds. Rational expectations equilibria are examined in three models of threshold switching to illustrate that (i) expectations formation...

In this paper we examine how target ranges work in the context of a Barro-Gordon (1983) type model, in which the time-inconsistency problem stems from political pressures from the government. We show that target ranges turn out to be an excellent way to cope with the time-inconsistency problem,...

Yes, as inferred from panel evidence for inflation-targeting countries and a control group of high-achieving industrial countries that do not target inflation. Our evidence suggests that inflation targeting helps countries achieve lower inflation in the long run, have smaller inflation response...

Aggregate shocks that move output and inflation in opposite directions create a tradeoff between output and inflation variability, forcing central bankers to make a choice. Differences in the degree of accommodation of shocks lead to disparate variability outcomes, revealing national central...

Is there a trade-off between fluctuations and growth? The empirical evidence is mixed, with some studies (Kormendi and Meguire (1985)) finding a positive relationship, while others (Ramey and Ramey (1995)) finding the a negative one. Our objective in this paper is to understand how fundamental...

A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more...