This study explores the macroeconomic implications of adaptive expectations in a standard real business cycle model. When rational expectations are replaced by adaptive expectations, we show that the self-confirming equilibrium is the same as the steady state rational expectations equilibrium...

This paper derives a central bank's objective function and optimal policy rule for an economy with both CPI and PPI inflation rates. It implements constrained-optimal policy rules with minimal information requirement, and evaluates the robustness of these simple rules when the central bank may...

The international welfare effects of a country’s monetary policy shocks have been controversial in the literature. While a unilateral monetary expansion increases the production efficiency in each country, it affects terms of trade in favor of one country against another depending on the...

The authors study international transmissions and welfare implications of monetary shocks in a two-country world with multiple stages of production and multiple border-crossings of intermediate goods. This empirically relevant feature is important, as it has opposite implications for two...

We construct a two-country DSGE model with multiple stages of processing and local currency staggered price-setting to study cross-country quantity correlations driven by monetary shocks. The model embodies a mechanism that propagates a monetary surprise in the home country to lower the foreign...

In sticky price models with endogenous investment, virtually all monetary policy rules that set a nominal interest rate in response solely to future in°ation induce real indeterminacy of equilibrium. Applying the Samuelson-Farebrother conditions, we obtain a necessary and suffcient condition...

This study explores the macroeconomic implications of adaptive expectations in a standard real business cycle model. When rational expectations are replaced by adaptive expectations, we show that the self-confirming equilibrium is the same as the steady-state rational expectations equilibrium...

This paper seeks to understand the evolution of the cyclical behavior of U.S. real wage rates from the interwar period to the post World War II period using a dynamic general equilibrium model that emphasizes demand-driven business cycle fluctuations. In the model, changes in the cyclical...