In Part 1 of this two-part series, Evan Koenig explains why some economists are skeptical that staggered price adjustment can account for monetary policy's sustained effects on aggregate economic activity. In Part 2, Koenig looks at labor-market imperfections as a possible source of persistence....

During the past two decades, financial innovations have proceeded at a rapid pace. These innovations have altered the liquidity of some assets relative to that of others. As a result, traditional measures of the money supply may have become less reliable as measures of household liquidity. Even...

Sargent and Wallace (1981) study the feasibility of a bond-financed increase in government spending. In their "unpleasant monetarist arithmetic," Sargent and Wallace show how using bonds to finance a permanent deficit today may necessitate faster money growth in the future, yielding higher...

Discussions of the effects of monetary and fiscal policy sometimes center on the impact of such policies in ameliorating fluctuations associated with the business cycle. However, though familiar with the term "business cycle," many people are not aware of what it refers to exactly. In this...

Some critics of recent monetary policy have focused on slow M2 growth, claiming that the Federal Reserve is too interested in price stability and is forsaking its growth mandate. Others criticize the Fed for achieving price stability too cautiously and urge the adoption of a rule that seeks to...

We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under learning. Appropriately designed expectations-based rules can yield optimal rational expectations (REs) equilibria that are both determinate and stable under...