The authors build a dynamic model of the business cycle with monopolistically competitive firms. With simple assumptions concerning firm entry and exit, the model can explain some stylized facts of the business cycle that standard real business cycle models cannot predict. They include the...

It has recently been shown that industrialized countries in the 1970s and 1980s are characterized by a high correlation between national saving and investment. This regularly is considered.puzzling in the context of highly integrated international capital markets. In this paper, the author shows...

In both the canonical and many extended versions of the New Keynesian model, optimal monetary policy under commitment implies price-level stationarity as long as expectations are rational. We show that this is no longer the case if the central bank and private agents make decisions before...