We add the Bernanke-Gertler-Gilchrist model to a modified version of the Smets-Wouters model of the US in order to explore the causes of the banking crisis. We test the model against the data on HP-detrended data and reestimate it by indirect inference; the resulting model passes the Wald test on...

We use available methods for testing macro models to evaluate a model of China over the period from Deng Xiaoping's reforms up until the crisis period. Bayesian ranking methods are heavily influenced by controversial priors on the degree of price/wage rigidity. When the overall models are tested...

The Calvo contract Phillips Curve is widely indexed for general inflation, using either core inflation or other backward-looking formulae. Such a Phillips Curve implies a high and persistent degree of nominal rigidity. It is argued here that optimal indexation would by contrast use the rational...

Nominal price and wage rigidity renders monetary policy effective over output. However, this effectiveness extends, under widely used overlapping-wage and Calvo-contract Phillips Curves, to planned monetary policy (‘exploitability’) and not merely to policy surprises. We argue that within...

The EMS's robustness in the face of stochastic shocks is studied, using the Liverpool World Model and the optimal strategy algorithm of Brandsma and Hughes Hallett. The EMS began life in 1979 with a system design permitting regular parity changes; we find this design to be relatively unstable,...

This survey essay considers how rational expectations have changed our evaluation of monetary policy. In the first section, various underpinnings of the "Phillips curve" relation between inflation and output are reviewed. All are concluded to be products of particular institutional set-ups whose...

This new model of international trade patterns is based on differing relative labor costs derived from differing endowments of skilled and unskilled labor, when labor is in elastic supply because of social support systems. All factors other than labor are assumed to be mobile across frontiers;...

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches...

Calvo contracts, which are the basis of the current generation of New Keynesian models, widely include indexation to general inflation. We argue that the indexing formula should be expected inflation rather than lagged inflation. This optimises the welfare of the representative agent in a...

This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment. This model is applied to the UK and the US interwar period which is remembered as the decade of mass unemployment. The theory here sees the natural...