We present a new approach to the approximation of equilibrium solutions to nonlinear rational expectations models that applies to any order of approximation. The approach relies on a particular version of Taylor series approximations - the differential version - and on a scalar perturbation of...

This paper studies optimal monetary policy under precommitment in a state-dependent pricing (SDP) environment, in contrast to the standard assumption of time-dependent pricing(TDP). I show that the endogenous timing of price adjustment under SDP importantly alters the policy tradeoffs faced by...

In their 2010 comment (which we refer to as CS10), Cogley and Sbordone argue that: (i) our estimates are not entirely closed form, and hence are arbitrary; (ii) we cannot guarantee that our estimates are valid, while their estimates (Cogley and Sbordone 2008, henceforth CS08) always are; and...

We illustrate the importance of placing model-consistent restrictions on expectations in the estimation of forward-looking Euler equations. In two-stage limited-information settings where first-stage estimates are used to proxy for expectations, parameter estimates can differ substantially,...

This paper investigates the role of observed official inflation-target adjustments in aggregate macroeconomic fluctuations in Indonesia, using an estimated Dynamic Stochastic General Equilibrium (DSGE) model. The paper finds that these adjustments or shocks play a non-trivial role in the...

How and under what circumstances can adjusting the inflation target serve as a stabilization-policy tool and contribute to welfare improvement? We answer these questions quantitatively with a standard New Keynesian model that includes cost-push type shocks. Our proposed inflation target rule...