Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant...

Much of the policy discussion of labor market institutions has been at the margin, with proposals to tighten unemployment benefits, reduce employment protection, and so on. There has been little discussion however of what the ultimate goal and architecture should be. The paper focuses on...

In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, and at least until the end of 2007, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using...

We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes...

Understanding inventory movements is central to an understanding of business cycles. This paper presents an empirical study of the behavior of inventories in the automobile industry. It finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational...

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong,...

In this paper, I investigate US post war price, wage and employment dynamics by identifying and estimating a price and a wage equation. I reach the following two main conclusions: Nominal wages adjust faster to prices than prices do to nominal wages. This may be taken as evidence that price...

This paper discusses the recent research on the consumption function that has attempted to relax the assumption of certainty equivalence. While there remain many open questions, both theoretical and empirical, it is clear that the assumption of certainty equivalence can be misleading. Under more...

U.S. macroeconomic evidence shows a negative relation between the rate of change of wages and unemployment. In contrast, most theories of wage determination imply a negative relation between the level of wages and unemployment. In this paper, we ask whether one can reconcile the empirical...

After three years of near stagnation, the mood in Europe is definitely gloomy. Many doubt that the European model has a future. In this paper, I argue that things are not so bad, and there is room for optimism. Over the last thirty years, productivity growth has been much higher in Europe than...