This paper aims to provide a stochastic, rational expectations extension of Tobin's "Money and Income; Post Hoc Ergo Proper Hoc?". It is well-known that money may Granger-cause real variables even though the joint density function of the real variables is invariant under changes in the...

For an economic system not to exhibit debt neutrality it must be true that changes in the time profile of lump-sum taxes redistributes resources between heterogeneous consumers. OLD models have age heterogeneity because of a positive birth rate. Unless a bequest motive or child-to-parent gift...

The paper presents a general solution method for rational expectations models that can be represented by systems of. deterministic first order linear differential equations with constant coefficients. It is the continuous time adaptation of the method of Blanchard and Kahn. To obtain a unique...

The paper addresses two issues that arise in estimation of testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restrict ion is...

One of the most puzzling aspects of the post-1973 floating exchange rate system has been the apparently inefficient predictive performance of forward exchange rates. This paper explores some aspects of each of three leading explanations of forward-rate behavior. The paper first develops a simple...

The paper studies the inflation rate associated with optimal monetary and fiscal policy in a number of standard dynamic stochastic general equilibrium models with nominal price rigidities. While the focus is on Calvo-style nominal price contracts with a range of indexation rules for constrained...

Prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short-term nominal interest rate renders open-market operations ineffective for achieving macroeconomic stabilization goals. In an earlier paper, we showed that this reasoning does...

The paper considers the implications of the rational expectations - New Classical Macroeconomics revolution for the "rules versus discretion" debate. The following issues are covered 1) The ineffectiveness of anticipated stabilization policy, 2) Non-causal models and rational expectations, 3)...

There is a large and growing empirical literature that tests forthe existence of asset-price bubbles or quot;sunspotquot; equilibria -- equilibria unrelated to market fundamentals. Our view is that even tests for non-stationary asset-price bubbles should not be interpreted as such. In the...