Returning to a topic first systematically treated by Poole (1970) in a textbook Keynesian model, this paper compares interest rate and money supply rules. Our analysis, by contrast, is conducted within a rational expectations macro model that incorporates flexible prices and informational...

During the mid-1970s standard regressions explaining the demand for money underwent a well documented shift. This shift was largely attributed to the adoption of a more sophisticated methods of cash management practices by firms. ; A version of this work was published in the Federal Reserve Bank...

Recently there has been renewed interest in using general equilibrium models to understand the effects of monetary policy on interest rates and real economic activity. This research effort involved the search for models that will account for the liquidity effects--the decrease in short-term...

This paper examines whether monetary indicators are useful in implementing optimal discretionary monetary policy when the policy maker has incomplete information about the environment. We find that money does not contain useful information for the policy maker, if we calibrate the model to the...

Arguments in favor of Keynesian models as opposed to real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this reasoning is Gali (1999). But certain...

Monetary economists have recently begun a serious study of money supply rules that allow the Fed to adjustably peg the nominal interest rate under rational expectations. These rules vary from procedures that produce stationary nominal magnitudes to those that generate nonstationarities in...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending and...

The Economic Recovery Act of 1981 led to the largest postwar decline in effective tax rates on capital. The legislation also had its most significant effect on rates in 1982 due to the rapid decline in inflation. Although some of the tax cut was rescinded in 1982, effective corporate tax rates...

The nature of price dynamics has long been thought important for the origin and duration of business cycles. To investigate this topic, we construct a dynamic stochastic general equilibrium macroeconomic model in which monopolistically competitive firms face fixed costs of changing the nominal...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government is constrained from using lump sum taxes for achieving intertemporal budget balance. The ratio of debt to gnp, therefore, has consequences for...