This paper studies the time variation of the Federal Reserve’s inflation target between 1960 and 2004 using both macro and yield curve data. I estimate a New Keynesian dynamic stochastic general equilibrium model in which the inflation target follows a random-walk process. I compare estimation...

This paper argues that a test of beta insignificance, commonly used in empirical studies of the CAPM, predisposes studies toward rejecting the CAPM. Under the null hypothesis of these tests, the CAPM is false. Consequently, insufficient evidence to reject the null is taken as sufficient evidence...

This paper uses Monte Carlo experiments to examine the small-sample properties of some commonly used tests of equal forecast accuracy. The study pays particular attention to test power, evaluated using both asymptotic and empirical critical values. In addition to evaluating different tests, this...

A convex marginal adjustment cost allows the neoclassical growth model to match observed transition paths for output growth, savings, investment, the real interest rate, and the shadow value of installed capital. Such an adjustment cost need apply only to one of two complementary capital inputs...

Macroeconomic models with microeconomic foundations face a difficult task: they must be consistent with facts both large and small. This paper proposes a model that combines two strands of the literature on stickiness in order to match both sets of facts. (1) Firms acquire information...

Recent work by Hamilton, Waggoner and Zha (2004) has demonstrated the importance of identification and normalization in econometric models. In this paper, we use the popular class of two-state Markov switching models to illustrate the consequences of alternative identification schemes for...

We document large differences in trend changes in hours worked across OECD countries over the period 1956-2004. We then assess the extent to which these changes are consistent with the intratemporal first order condition from the neoclassical growth model. We find large and trending deviations...