A heated debate has arisen over what Modigliani has dubbed the Macro Rational Expections (MRE) hypothesis. This hypothesis embodies two component hypotheses: 1) rational expectations and 2) short-run neutrality -- i.e., that anticipated changes in aggregate demand will have already been taken...

In this paper we rethink the NAIRU concept and examine whether it might have a useful role in monetary policy. We argue that it can, but success depends critically on defining NAIRU as a short-run concept and distinguishing it from a long-run concept like the natural rate of unemployment. We...

This lecture outlines an asymmetric information theory of financial instability which describes the fundamental forces which harm both the financial sector and economic activity. This asymmetric information framework is then used to demonstrate that although international capital movements and...

This paper examines the international experiences with four basic types of monetary policy regimes: 1) exchange-rate targeting, 2) monetary targeting, 3) inflation targeting, and 4) monetary policy with an implicit but not an explicit nominal anchor. The basic theme that emerges from this...

This paper attempts to provide a perspective on the causes of inflation by exploring why sustained inflations occur and the role of monetary policy in the inflation process. The conclusion reached in this paper is that in the last ten years there has been a convergence of views in the economics...

Several recent studies find that ex ante real returns for short-term U.S. Treasury securities are negatively correlated both with inflation and with nominal interest rates. This paper examines whether these findings extend to the short-term holding return on publicly and privately issued...

This paper analyzes an important class of models in which expectations play an important role. Topics included in the analysis are tests of: (1) rationality of forecasts in either market or survey data, (2) capital market efficiency, (3) the short-run neutrality of monetary policy and, (4)...

The impact of a money stock increase on nominal short-term interest rates has been a hotly debated issue in the monetary economics literature. The most commonly held view -- also a feature of most structural macro models--has an increase in the money stock leading, at least in the short-run, to...

This paper is an empirical exploration of real interest rate movements in the United States over the last fifty years. It focuses on several questions which have repeatedly arisen in the literature. How valid is the hypothesis associated with Fama (1975) that the real rate of interest is...

This paper conducts tests of the rationality of both inflation and short-term interest rate forecasts in the bond market. These tests are developed with the theory of efficient markets and make use of security price data to infer information on market expectations