In this paper it is shown that money can matter for macroeconomic stability under interest rate policy, if transactions frictions are specified in a consistent way. We develop a sticky price model with a shopping time specification, which induces the marginal utility of consumption to depend on...

We study the consequences of non-neutrality of government debt with respect to aggregate demand for short-run macroeconomic stability and for fiscal-monetary policy interactions in an environment where prices are sticky. Assuming either transaction services of government bonds or partial debt...

Empirical studies reveal that monetary policy shocks generate long-lasting effects on real GDP, countercyclical real wages before World War II and procyclical real wages afterwards. In this paper, we construct a dynamic general equilibrium model to explain the observed output persistence and the...

In the recent SVAR literature, the liquidity effect has been studied by imposing a variety of identifying restrictions required under the assumption that the SVAR fundamental disturbances are homoscedastic. Using typical SVAR processes, we first show that this assumption is not supported by the...

I discuss several lessons regarding the design and conduct of monetary policy that have emerged out of the New Keynesian research program. Those lessons include the bene.ts of price stability, the gains from commitment about future policies, the importance of nat- ural variables as benchmarks...

We study how the use of judgment or "add-factors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy...

The purpose of this paper is to investigate the optimal rate of money supply growth when a moral hazard problem in an insurance market makes the risk diversification incomplete. The analysis is based on a simple overlapping generations model of fiat money with idiosyncratic uncertainty. Without...