This paper estimates a series of shocks to hit the US economy during the Great Depression, using a New Keynesian model with unemployment and bargaining frictions. Shocks to long-run inflation expectations appear to account for much of the cyclical behavior of employment, while an increase in...

A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more...

Inflation and unemployment are central issues in macroeconomics. While progress has been made on these issues recently using models that explicitly incorporate search-type frictions, existing models analyze either unemployment or inflation in isolation. We develop a framework to analyze...

OBJECTIVES AND MOTIVATION: This paper considers the impact of interactions between competitiveness, fiscal policy and monetary institutions in the presence of unionized labor markets on economic outcomes and welfare in the long run. Two main classes of questions are investigated. First, what is...

Conjectures about inflation expectations are inextricably linked to our understanding of the relationship between the real and monetary sides of the economy; yet, direct empirical research on the matter has been scarce at best. This paper therefore examines the empirical properties of inflation...

We examine global economic dynamics under learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead...

This paper builds upon Hoon and Phelps (1992, 1997) to ask how much of the evolution of the unemployment rate over several decades in country can be explained by real factors in an equilibrium model of the natural rate where country's productivity growth depends upon its distance from the...

In this paper we present two examples where the presence of inflation persistence could influence the qualitative nature of monetary policy. In the first case the desirability of a monetary policy regime comes under question when extensive inflation persistence exists. In the second case the...

In this paper we introduce and test the hypothesis that the relation between inflation and unemployment has been in many countries subject to a significant change in the early 1990's after the disinflation period. That period began between 1975 and 1980 after the first (or the second) oil price...

Models in which firms use rules of thumb or partial indexing in their price setting have become prominent in the recent monetary policy literature. The extent to which these firms adjust their prices to lagged inflation has been taken as fixed. We consider the implications of firms choosing the...