In this paper, three possible reasons are examined for a sluggish inflation response to a hard-currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. These findings are contrasted with the effects of government credibility and the speed of private...

Exchange rate behavior is analyzed in the context of a stochastic rational expectations model in which there are random shocks to the price-setting mechanism and in which the authorities choose to impose either nominal or real exchange rate bands. The effects of rules for realignment of the band...

The paper evaluates the implications for the conduct of monetary, fiscal, and financial policy of the rational expectations revolution in macroeconomics. It concludes that some important policy conclusions derived from conventional eclectic neo-Keynesian models remain valid when rational...

The paper uses a small analytical two-region model (the Mundell-Dornbusch model, as first adapted by Marcus Miller), consisting of the United States and the rest of the industrial world, to analyze three issues concerning international economic interdependence and macroeconomic policy...

The paper reviews the channels of macroeconomic interdependence under flexible exchange rates. The model emphasizes the linkage of international capital markets, expectations, and nominal and real wage stickiness in affecting the impact of disturbances on employment, prices, and the exchange...

This paper studies budgetary, financial, and monetary policy evaluation and design using a comprehensive wealth or permanent income accounting framework. A set of stylized balance sheets and permanent income accounts is constructed for the public, private, and overseas sectors. These are then...