In this paper, I combine disappointment aversion, as employed by Routledge and Zin and Campanale, Castro and Clementi, with rare disasters in the spirit of Rietz, Barro, Gourio, Gabaix and others. I find that, when the model’s representative agent is endowed with an empirically plausible...

John Taylor and David Romer champion an approach to teaching undergraduate macroeconomics that dispenses with the LM half of the IS-LM model and replaces it with a rule for setting the interest rate as a function of inflation and the output gap - i.e., a Taylor rule. But the IS curve is...

When economists are concerned that the economy may be about to change direction, one of the indicators to which they give special scrutiny is the Purchasing Managers’ Index (PMI), released monthly by the Institute for Supply Management. This article discusses the construction and...

In this article Evan Koenig looks at measures of the Federal Reserve’s policy stance and discusses why short-term interest rates will almost certainly have to increase at some point. The article also examines the historical relationship between Federal Reserve policy, inflation and resource...

Accurate forecasts of inflation are important to policymakers and to individuals who must make decisions on the basis of expectations about the future purchasing power of the dollar. ; Recent research on forecasting inflation has shown that interest rates, by themselves, may provide useful...