The Taylor rule is an incomplete description of monetary policy within a New Keynesian model. The NK model should be formulated with a money demand function and also embody a terminal condition on inflation explicitly designed to stop bubbles.

A stylized fact of European unemployment dynamics is one of extreme persistence and possible unit root behavior. This has led to a major reconsideration of the natural rate paradigm. We apply the Kalman filter to estimate the natural rate of unemployment for Germany and France. When the moving...