This paper investigates the stabilization bias that arises in a model of monetary and fiscal policy stabilization of the economy, when monetary authority puts higher weight on inflation stabilization than society. We demonstrate that inflation conservatism unambiguously leads to social welfare...

This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the United Kingdom. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intraperiod leadership, we demonstrate that the past policy in the...

This paper presents a framework for empirical analysis of dynamic macroeconomic models using Bayesian filtering, with a specific focus on the state-space formulation of New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) models with multiple regimes. We outline the theoretical...

This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of...

There is growing evidence that the cross section of the growth rate of firms is subject to systematic distortions at business cycle frequencies. In this paper we briefly review this evidence and then offer a theoretical model that incorporates nonlinearities in the way in which firms respond to...