The strength of U.S. productivity growth in recent years has been attributed to technological improvements that are, in some sense, embodied in new types of capital equipment. However, traditional growth theory and growth accounting techniques—which emphasize the role of disembodied, neutral...

This paper revisits the debate over the money supply versus the interest rate as the instrument of monetary policy. Using a dynamic stochastic general equilibrium framework, the authors examine the effects of alternative monetary policy rules on inflation persistence, the information content of...

The theory of purchasing power parity (PPP) has long been a staple of international economic analysis. Recent years have seen the rise in popularity of a tongue-in-cheek, fast-food version of PPP: The Big Mac™ index. In this article, Michael Pakko and Patricia Pollard describe how comparisons...

The rapid pace of economic growth in the 1990s was associated with an increasingly prominent role for investment, particularly for information processing and communications technologies. Given the evident pace of technological advancement in these sectors, official economic statistics have been...

Interest rates sometimes seem to respond to Federal Reserve policy actions in unexpected ways--for example, falling when the Fed " tightens" monetary policy or rising when the Fed "eases" policy. In this article, Michael R. Pakko and David C. Wheelock attempt to demystify such responses. They...

This paper reconsiders recent empirical evidence found by Andrew Rose that countries adopting a common currency will triple their bilateral trade. The authors find that this large estimated effect is due to estimation bias arising from missing and/or misspecified time-variant factors rather than...

General equilibrium models of international fluctuations that assume complete asset markets predict that consumption will be highly correlated across countries, while the data display correlations that are rather low. It has become common to characterize this empirical regularity by noting that...

This paper examines the impact of a permanent shock to the productivity growth rate in a New Keynesian model when the central bank does not immediately adjust its policy rule to that shock. Our results show that inflation and productivity growth are negatively correlated at business cycle...