The natural rate of interest -- the real interest rate consistent with output equaling potential -- plays an important role in both economic forecasting and monetary policy. Much of the literature has assumed that the natural rate of interest is constant. For example, the Taylor rule includes a...

This paper develops and simulates a three-period life-cycle model with aggregate uncertainty. The model incudes a market in risk-free bonds. The paper studies how uncertainty in fiscal policy affects welfare, the equity premium, risk-sharing, and the caculation of generational accounts.

The monetary instrument problem is examined in an endowment economy model with various stochastic disturbances, with minimizing the variance of inflation as the policy objective. Following current developments in the theory of fiscal determination of the price level, for different monetary...