Though built with increasingly precise microfoundations, modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks, as recently stressed by Chari, Kehoe, and McGrattan (2000). We trace this lack of persistence to a...

Empirical evidence suggests that movements in international relative prices are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect driving international relative price movements....

Until recently, when assessing the economic effects of monetary policy, economists have emphasized the role of unanticipated changes in policy. But are these policy shocks likely to be the most important influence on the economy? Mike Dotsey believes not. It seems more likely that the Fed's...

Whether policymakers should commit to a certain course of action or have the flexibility to approach each situation as it arises continues to be a central question in the design of monetary policy. A seminal article written by two prominent economists in 1977 analyzed the benefits of carrying...

State-dependent pricing (SDP) models treat the timing of price changes as a profit-maximizing choice, symmetrically with other decisions of firms. Using quantitative general equilibrium models that incorporate a “generalized (S,s) approach,” we investigate the implications of SDP for topics...

This paper provides a detailed examination of various money stock control procedures in a rational expectations environment. A major result is that borrowed reserve targeting is not necessarily equivalent to a noisy funds rate instrument. However, total reserve control, under contemporaneous...