In this paper, we show that in order to obtain a sound identification of Euro Area monetary policy shocks, one needs to deal with the interaction of the European Central Bank and the US Federal Reserve. In other words, a proper identification of monetary policy shocks for an open economy like...

The paper studies the effects of credible disinflation in the presence of real wage rigidity, comparing the Calvo and Rotemberg price setting mechanisms (the two popular variants of the New-Keynesian model). In both types of models, a credible, gradual disinflation is shown to lead to a delayed...

Calvo pricing implies output gains, while Rotemberg pricing implies output losses after a disinflation. Introducing real wage rigidities has opposite effects: it generates a long-lasting boom in output in Calvo, and a moderate output slump in Rotemberg.

Even low levels of trend inflation substantially affect the dynamics of a basic new Keynesian DSGE model when monetary policy is conducted by a contemporaneous Taylor rule. Positive trend inflation shrinks the determinacy region. Neither the Taylor principle, which requires the inflation...

This paper investigates the sources of the widely noticed reduction in the volatility of American business cycles since the mid 1980s. Our analysis of reduced volatility emphasizes the sharp decline in the standard deviation of changes in real GDP, of the output gap, and of the inflation rate....

The paper shows how increases in the inflation rate can cause the output growth rate to decrease by a lessor amount as the inflation rate rises. This is the so-called non-linearity in the inflation-growth effect. Our explanation helps show how model-based estimates of the inflation-growth effect...

This paper provides an empirical comparison of the sticky-price and the sticky information Phillips curves on the basis of second moments of inflation for six countries, the US, the UK, Germany, France, Canada, and Japan. We evaluate the models' abilities to match empirical second moments of...

This paper empirically compares sticky-price and sticky-information Phillips curves considering inflation dynamics in six countries (US, UK, Germany, France, Canada, and Japan). We evaluate the models' abilities to match empirical second moments of inflation. Under baseline calibrations, the two...

In recent years, a broad academic consensus has arisen that favors using rational expectations sticky-price models to capture inflation dynamics. We review the principal conclusions of this literature concerning: (1) the ability of these models to fit the data; (2) the importance of rational...