A growing body of empirical evidence shows that there exists a long-run positive tradeoff between inflation and real macroeconomic activity. Within a New Keynesian framewok, we examine how increasing returns generate a positive long-run relation between inflation and output.

We consider the effect of money illusion - defined referring to Stevens' ratio estimation function - on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if agents under-perceive real economic variables, negative money non-superneutralities...

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

This paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call "frictional growth", i.e. the interaction between money growth and...

Milton Friedman's contributions to and influence on macroeconomics are discussed, beginning with his work on the consumption function and the demand for money, not to mention monetary history, which helped to undermine the post World War 2 Keynesian consensus in the area. His inter-related...

Milton Friedman's contributions to and influence on macroeconomics are discussed, beginning with his work on the consumption function and the demand for money, not to mention monetary history, which helped to undermine the post World War 2 "Keynesian" consensus in the area. His inter-related...

This paper introduces the Bank of England's new forecasting platform and provides examples of how it can be applied to practical forecasting problems. The platform consists of four components: COMPASS, a structural central organising model; a suite of models, used to fill in the gaps in the...

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust - and the subsequent...

How important is the effect of the interest rate Zero Lower Bound (ZLB) on the severity of the U.S. Great Recession? We tackle this question using an incomplete markets New Keynesian model, with a ZLB on the nominal interest rate and a borrowing constraint tied to asset price. We solve the model...