We explore the short-run effects of fiscal policy using simulations of an empirical, rational-expectations, open-economy macromodel developed at the Federal Reserve Board. Based on this model, we find that tax cuts and spending increases generally stimulate economic activity in the short run,...

Incorporating adaptive learning into an open-economy DSGE model, we examine how monetary policy rules should adjust when agents’ information set deviates from that assumed under the rational expectations paradigm. We find that when agents observe current shocks but don’t know the parameters...

Since the channel for agents' expectations matters for the effectiveness of monetary policies, it is crucial for policy-makers to assess the degree to which economic agents are boundedly rational and understand how the bounded rationality affects the monetary rules in stabilising the economy. We...

Despite sound theoretical foundations a drawback of the New Keynesian model is its inability to generate adequate persistence in the variables it seeks to explain. A common solution is to modify the model to include lagged variables. However, this is unsatisfactory as many such modifications...

This paper examines the effects of ex-change-rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future. The economy studied is one in which the authorities allow free mobility of capital under a crawling-peg exchange-rate regime. Many...