This paper extends a New Keynesian model to include roles for currency and depositsas competing sources of liquidity services demanded by households. It showsthat, both qualitatively and quantitatively, the Barnett critique applies: While a Divisiaaggregate of monetary services tracks the true...

In this paper we propose a novel methodology to analyze optimal policies undermodel uncertainty in micro-founded macroeconomic models. As an application weassess the relevant sources of uncertainty for the optimal conduct of monetary policy within (parameter uncertainty) and across models...

This paper examines whether the existence and the timing of real balance effects contribute to the determination of the absolute price level, as suggested byPatinkin (1949,1965), and if they affect conditions for local equilibrium uniqueness and stability. I show that there exists a unique price...

This paper examines how money demand induced real balance effects contribute to the determination of the price level, as suggested by Patinkin (1949,1965), and if they affect conditions for local equilibrium uniqueness and stability. There exists a unique price level sequence that is consistent...

Using the Consensus Economics dataset with individual expertforecasts from G7 countries we investigate determinants of disagreement (crosssectionaldispersion of forecasts) about six key economic indicators. Disagreementabout real variables (GDP, consumption, investment and unemployment)has a...

Much recent research has focused on the development and analysis of extensions of the New Keynesianframework that model labor market frictions and unemployment explicitly. The present paper describessome of the essential ingredients and properties of those models, and their implications for...

Linear Methods are often used to compute approximate solutions to dynamic models, as these models often cannot be solved analytically. Linear methods are very popular, as they can easily be implemented. Also, they provide a useful starting point for understanding more elaborate numerical...

For decades economists have considered money illusion aslargely irrelevant. Here we show, however, that money illusion haspowerful effects on equilibrium selection. If we represent payoffs innominal terms almost all subjects play at or close to an inefficientequilibrium whereas if we lift the...

It is common knowledge that the standard New Keynesian model is not able to generate a persistent response in output to temporary monetary shocks. We show that this shortcoming can be remedied in a simple and intuitively appealing way through the introduction of labor turnover costs (such as...