An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring. The authors show that this type of model results in more employment variability and less-procyclical wages than do models without fixed hiring costs.

This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler and Gilchrist (1999), hereafter BGG. The optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. This triple...

This paper develops a model of segmented financial markets in which the net worth of financial institutions limits the degree of arbitrage across the term structure. The model is embedded into the canonical Dynamic New Keynesian (DNK) framework. We estimate the model using data on the term...

Recent monetary policy experience suggests a simple test of models of monetary non-neutrality. Suppose the central bank pegs the nominal interest rate below steady state for a reasonably short period of time. Familiar intuition suggests that this should be inflationary. But a monetary model...

An increasingly common approach to the theoretical analysis of monetary policy ensures that a proposed policy does not introduce real indeterminacy—and thus sunspot fluctuations—into the model economy. Policy is typically conducted in terms of directives for the nominal interest rate. This...

A comparison showing that the transition costs of indexing inflation (a major obstacle to monetary policy reform) are approximately equal to the minor shoe-leather benefits of having price stability.

This working paper examines a theoretical model in which an entrepreneur’s net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy. In this environment, the central bank plays a welfare-improving...

A presentation of a sectoral-shifts model with money that explains the short-run Phillips curve and predicts a long-run positive relationship between inflation and unemployment.

This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. It conducts this analysis in a flexible price economy and a sticky price model. A robust conclusion is that to ensure determinacy, the...

An explanation of involuntary unemployment and procyclical quits based on models of implicit contracts and on-the-job search.