The conventional Keynesian model suggests that frictions created by nominal wage contracts generate a positive relationship between inflation and output. On the other hand, the new classical/real business cycle theory claims that firms and workers base their employment behavior, and hence...

Yes, specifically, the authors find that recently spending and taxing policies of the government--if continued--violate the government's intertemporal budget constraint. As a result, government spending must be reduced and/or tax revenues must be increased. These conclusions are based on tests...

The classic example of a temporary supply shock is a failed agricultural harvest. Theoretically, adverse temporary supply shocks are predicted to raise the ex ante real interest rate; that is, a below-normal harvest raises the interest rate. Apparently, however, no one has tested this conclusion...