Optimal monetary policy analysis can be viewed as a constrained optimization problem: the policymaker chooses a competitive equilibrium allocation that maximizes social welfare among the set of all feasible competitive equilibrium allocations. Part of the solution to this problem is a monetary...

A finding that lagged inflation helps explain the behavior of current inflation in Phillips-curve-type specifications is generally thought to imply a departure from optimality in the pricing behavior of firms. Popular explanations either involve some fraction of firms using a backward-looking...

This paper explores the implications of rational expectations and the aggregate supply theory advanced by Lucas (1973) for analysis of optimal monetary policy under uncertainty along the lines of Poole (1970), returning to a topic initially treated by Sargent and Wallace (1975). Not...

This paper reexamines the forecasting ability of Phillips curves from both an unconditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our...

This paper reexamines the forecasting ability of Phillips curves from both an unconditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our...

Real business cycle models have recently been applied to settings in which equilibria are suboptimal. In most models the solutions are approximated using some type of linearization with little attention being given to the accuracy of the approximation. In this paper we investigate three...

This paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions. Although individually none of the distortions is very large, they combine to yield substantial welfare cost estimates. A sustained 4 percent inflation like that experienced in...