This paper argues that, with a flat Phillips curve, welfare can be improved if the Central Bank stabilizes the output gap directly. The pursuit of price stability may, in fact, increase price stickiness, flatten the Phillips curve further, increase the distortions due to sticky prices, and lead...

Big technological improvements in a new, secondary sector lead to a period of excitement about the future prospects of the overall economy, generating boom-bust dynamics that propagate through credit markets. Increased future capital prices relax collateral constraints today, leading to a boom...

Empirical estimates find that the relationship between inflation and the output gap is close to nonexistent—a so-called flat Phillips curve. We show that standard pricing frictions cannot simultaneously produce a flat Phillips curve and meaningful inflation from plausible supply shocks. This...

Big technological improvements in a new, secondary sector lead to a period of excitement about the future prospects of the overall economy, generating boom-bust dynamics propagating through credit markets. Increased future capital prices relax collateral constraints today, leading to a boom...