This paper presents a simple model with financial frictions where inflation increases the cost faced by firms holding liquid assets to hedge risky production against expenditure shocks. Inflation tilts firms' technology choice away from innovative activities and toward safer but return-dominated...

We exploit the marked changes intervened in U.K. monetary arrangements since the metallic standards era to investigate continuity and changes across regimes in key macroeconomic stylised facts in the United Kingdom. Our main findings may be summarised as follows. (1) Historically, inflation...

This paper presents baseline sticky-price and sticky-information models of price-setting, and modifies each to incorporate some “rule-of-thumb†price-setters that index to inflation over recent periods. These models are estimated for the United States via maximum-likelihood techniques....

In this paper we analyse the monetary impact of alternative fiscal policy rules using the debt and deficit, both mentioned as measures of fiscal policy performance in the Stability and Growth Pact (SGP). We use a New Keynesian model, with distortionary taxation and an appropriately defined...

In this paper we show that a model featuring durables consumption, weak credibility, and sticky prices can explain many of the stylized facts associated with exchange-rate-based stabilization, including the quantitative variation exhibited by key macroeconomic variables. In standard models, the...

The performance of a "capital certain" Divisia index constructed using the same components included in the Bank of England"s MSI plus national savings; a "risky" Divisia index constructed by adding bonds, shares and unit trusts to the list of assets included in the first index; and a capital...