We present a model in which the addition of an option market leads to sunspot equilibria in an economy which has no sunspot equilibrium before the market is introduced. This phenomenon occurs because the payoff of an option contract is contingent upon market prices, and while prices are taken as...

Psychological evidence indicates that a person's well-being depends not only on his current consumption of goods, but on a reference level determined by his past consumption. According to Kahneman and Tversky's (1979) prospect theory, people care much more about losses relative to their...

In this paper the class of admissable tests for unit roots in panel data sets of autoregressive, Gaussian time series will be partially characterized. Using this characterization, several recently suggested tests are shown to be inadmissable. Since the sufficient statistic for this testing...

This paper examines the extent to which a decline in market power could have contributed to the general decline in inflation rates experienced in developed countries during the 1990s.

The considerable amount of research in recent years on New Keynesian, open-economy models -- models with nominal price rigidities and intertemporally maximizing agents -- has yielded fresh insights for what Alan Blinder has called the "dark art" of making monetary policy. The literature has made...

We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those...

A model that contains no costs to changing prices but in which prices do not respond to nominal shocks is presented. In models that do not feature superneutrality of money flexible price equilibria will allow certain types of monetary shocks to affect the real economy. Sticky price behavior may...

Economies with limited communication contain an externality which typically makes them Pareto inefficient, even taking into account the communication con­straints agents face. In a two period model it is shown that an open and dense set of economies with limited communication are constrained...

This paper reviews the experience of eight major foreign central banks with policy interest rates comparable to the interest rate on excess reserves paid by the Federal Reserve. We pursue two main lines of inquiry: 1) To what extent have these policy interest rates been lower bounds for...

Prior to the recent financial crisis, one of the most prominent examples of unconventional monetary stimulus was Japan's "quantitative easing policy" (QEP). Most analysts agree that QEP did not succeed in stimulating aggregate demand sufficiently to overcome persistent deflation. However, it...