This paper assesses the impact of a monetary policy shock on the U.S. economy. The authors' measures of contractionary monetary policy shocks are associated with a fall in various monetary aggregates and a rise in the federal funds rate, declines in different measures of real activity, and sharp...

This paper presents a flexible-price, quantitative general equilibrium model with the property that a positive money supply shock drives the nominal interest rate down, and aggregate employment, output, and the real wage up. These implications are broadly consistent with postwar U.S. data. The...

Measured aggregate U.S. consumption does not behave like a martingale. The authors develop and test two variants of the permanent income model which reflect that. In both, agents make decisions in continuous time. In one variant, martingale behavior holds; serial persistence in measured...

This article describes three approximation methods I used to solve the growth model (Model 1) studied by the National Bureau of Economic Research's nonlinear rational-expectations-modeling group project, the results of which are summarized by Taylor and Uhling (1990). The methods involve...

It has been suggested that existing estimates of the long-run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in postwar U.S. gross national product data. This article shows that the statistical evidence does not warrant abandoning the...

This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium, the ex ante tax rate on capital income is approximately zero. The tax rate on labor income fluctuates very little and inherits the persistence properties of the...