A new theory of price determination suggests that if primary surpluses are independent of the level of debt, the price level has to jump' to assure fiscal solvency. In this regime (which we call Fiscal Dominant), monetary policy has to work through seignorage to control the price level. If on...

This chapter reviews and synthesizes our current understanding of the shocks that drive economic fluctuations. The chapter begins with an illustration of the problem of identifying macroeconomic shocks, followed by an overview of the many recent innovations for identifying shocks. It then...

Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general...

Real wages are a key determinant of marginal costs. The latter themselves are a driving force of inflation. We ask how wages and labor market shocks feed into the inflation process. We model search and matching frictions in the labour market in an otherwise standard New-Keynesian closed economy...

Having the high unemployment in Germany in mind, this book discusses how macroeconomic theory has evolved over the past forty years. It shows that in recent years a convergence has taken place, with modern models embodying a Keynesian transmission mechanism, monetarist policy implication, and...

Exploiting results from the literature on non-parametric identification, we make three methodological contributions to the empirical literature estimating the matching function, commonly used to map unemployment and vacancies into hires. First, we show how to non-parametrically identify the...

A search-theoretic general equilibrium model of frictional unemployment is shown to be consistent with some of the key regularities of unemployment over the business cycle. In the model the return to a job moves stochastically. Agents can choose either to quit and search for a better job, or...