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I investigate the welfare cost of business cycles due to asymmetries generated by two occasionally binding constraints (OBCs): downward nominal wage rigidity (DNWR) and zero lower bound (ZLB). Although business cycle volatility has declined recently as the Great Moderation literature suggests, I...
Persistent link: https://www.econbiz.de/10014264245
This paper computes the welfare gains from inflation reduction in an estimated dynamic stochastic general equilibrium model of the U.S. economy. Both steady state and transitional welfare results are reported. I find important steady state welfare gains from a 10 percentage points drop in...
Persistent link: https://www.econbiz.de/10014049221
This paper proposes a simple endogenous-fluctuations growth model to show: 1) long-run growth and short-run fluctuations can be intimately linked; in particular, the rate of long run growth can be negatively affected by volatilities; 2) imperfect competition can cause endogenous fluctuations, and...
Persistent link: https://www.econbiz.de/10014027095
This paper shows that (i) fluctuations driven by self-fulfilling expectations can negatively affect long-run growth and (ii) the welfare gain from further stabilizing the U.S. economy can be several orders larger than that calculated by Lucas (1987) because policies designed to reduce...
Persistent link: https://www.econbiz.de/10012729186
This paper constructs an endogenous growth model driven by self-fulfilling expectation shocks to explain the stylized fact that the average growth rate of GDP is related negatively to volatility and positively to capacity utilization. The implied welfare gain from further stabilizing the U.S....
Persistent link: https://www.econbiz.de/10012714034
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Monetarism is that solid microfoundations are critical for understanding monetary issues. We survey recent papers on monetary … theory, showing how they build on common foundations. We then lay out a tractable benchmark version of the model that allows …
Persistent link: https://www.econbiz.de/10013143787
This paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price-setting. Rotemberg and Woodford (1997) and Woodford (2002) have shown that under certain conditions, a local approximation to the expected utility of the representative...
Persistent link: https://www.econbiz.de/10013247421
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