This paper estimates a dynamic stochastic general equilibrium (DSGE) model for the European Monetary Union by using Bayesian techniques. A salient feature of the model is an extension of the typically postulated quadratic cost structure for the monopolistic choice of price variables. As shown in...

This paper identifies parameters responsible for welfare reversals when the basic New Keynesian model is approximated. In our setting, a reversal occurs when the Ramsey policy under timeless perspective commitment ceases to be dominant against the Taylor rule after approximating the model. We...

This paper shows the inappropriatedness of approximation procedures for welfare rankings across suboptimal policy strategies. On the grounds of a simple general equilibrium model, we find that even commonly accepted techniques are not suitable to achieve accurate welfare orderings. This result...

This paper shows how endogeneous inflation inertia is generated by a simple modificaton of the quadratic adjustment cost structure faced by economic agents. We derive the pertinent inflation relationships based on purely nominal rigidities and show that they always involve additional expectation...

In this paper, we experimentally test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structure, we are able to address a question fundamental to the valuation of firms: does capital structure affect the...