Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be asily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how...

I provide some new evidence that reinforces the conclusion in Galí (1999) that exogenous variations in technology play a very limited role, if any, as sources of the business cycle. First, I provide evidence that supports the identification of technology shocks proposed in that paper. Second, I...

This paper evaluates new evidence on price-setting practices and inflation persistence in the euro area with respect to its implications for macro modeling. It argues that several of the most commonly used assumptions in micro-founded macro models are seriously challenged by the new findings....