Although the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticized by several economists. Colander demonstrated that the framework is logically inconsistent, Romer showed that it is unable to deal with a monetary policy that...

This paper develops an open economy portfolio balance model with endogenous asset supply. Domestic producers choose an optimal capital structure and finance capital goods through credit, bonds and equity assets. Private households hold a portfolio of domestic and foreign assets, shift balances...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1995), under the heading of the 'Fiscal Theory of the Price Level' (FTPL). Applications of this theory to open economies operating under flexible exchange rates has suggested...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1995), under the heading of the 'Fiscal Theory of the Price Level' (FTPL). Some authors have suggested that this theory provides a rationale for the Pact for Stability and Growth...

We establish a two-sector model to simulate the potential effects of green fiscal policies and unconventional green monetary policy on the economy during a recovery or in case of a stimulus policy. We find that instruments such as carbon tax, implicit tax on brown loans, and subsidy for the...

The theoretical foundation of inflation targeting was laid out by the Swedish economist Knut Wicksell (1851-1926) in his groundbreaking treatise, Interest and Prices, published originally in German in 1898. Here he proposed price stability as the rule for monetary policy. Today, inflation...

This chapter reviews the role of temporary price and wage rigidities in explaining of the dynamic relationship between money, real output, and inflation. The key properties to be explained are that monetary shocks have persistent, but not permanent, effects on real output, and that the...

Economists have long investigated the cyclical behavior of real wages in order to draw inferences regarding the relative stickiness of prices and wages. Recent studies have adopted techniques intended to identify monetary shocks and examined the response of real wages and output or employment to...

The main purpose of this study is to explore the potential expansionary effect stemming from the monetization of debt. We develop a simple macroeconomic model with Keynesian features and four sectors: creditor households, debtor households, businesses, and the public sector. We show that such...

The authors report the results of the estimation of a rich dynamic stochastic general equilibrium model of the U.S. economy with both stochastic volatility and parameter drifting in the Taylor rule. They use the results of this estimation to examine the recent monetary history of the U.S. and to...