An increasingly common approach to the theoretical analysis of monetary policy ensures that a proposed policy does not introduce real indeterminacy—and thus sunspot fluctuations—into the model economy. Policy is typically conducted in terms of directives for the nominal interest rate. This...

A comparison showing that the transition costs of indexing inflation (a major obstacle to monetary policy reform) are approximately equal to the minor shoe-leather benefits of having price stability.

This working paper examines a theoretical model in which an entrepreneur’s net worth affects his ability to finance current activity. Net worth, in turn, is determined by asset prices, which can be affected by monetary policy. In this environment, the central bank plays a welfare-improving...

A presentation of a sectoral-shifts model with money that explains the short-run Phillips curve and predicts a long-run positive relationship between inflation and unemployment.

This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. It conducts this analysis in a flexible price economy and a sticky price model. A robust conclusion is that to ensure determinacy, the...

An explanation of involuntary unemployment and procyclical quits based on models of implicit contracts and on-the-job search.

Should monetary policy respond to asset prices? This paper analyzes this question from the vantage point of equilibrium determinacy.

A presentation of computational counterfactual experiments that examine the quantitative impact of marginal tax rates on the distribution of income.

Recessions are associated with both rising oil prices and increases in the federal funds rate. Are recessions caused by the spikes in oil prices or by the sharp tightening of monetary policy? This paper discusses the difficulties in disentangling these two effects.

A consideration of the welfare consequences of two simple monetary policy rules--an interest rate peg and a money growth peg--in a dynamic general-equilibrium model, indicating that the interest rate rule dominates the money growth rule.