The model developed in Robert Lucas's influential "Expectations and the Neutrality of Money" has not been widely used for extensions or modifications of the original analysis, in part because of its difficulty of manipulation.The present paper describes a linearized version that--unlike other...

The main section of this paper discusses competing theories of aggregate supply that are currently being utilized in macroeconomic models with rational expectations. The distinction between flexible-price equilibrium models and models with nominal contracts is emphasized and three models of the...

The main arguments of this paper can be summarized as follows. (1) The overlapping-generations (OG) structure provides a useful framework for the analysis of macroeconomic issues involving intertemporal allocation. (2) As a "model of money," the basic OG setup -- which excludes cash-in-advance...

This paper considers the possible theoretical validity of the following "monetarist hypothesis": that a constant, positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money. The question is studied in a...

A Keynesian idea of considerable historical importance is that, in the presence of a liquidity trap, a competitive economy may lack--despite price flexibility--automatic market mechanisms that tend to eliminate excess supplies of labor. The standard classical counterargument, which relies upon...

Many macroeconomic models involving rational expect at ions give rise to an infinity of solution paths, even when the models are linear in all variables. Some writers have suggested that this non-uniqueness constitutes a serious weakness for the rational expectations hypothesis. One purpose of...

Given the influence of Milton Friedman ,it is hard to keep from identifying "monetarisms" with the advocacy of a policy rule that would require the money stock to grow at a constant rate and prohibit cyclical adjustments in government spending or in tax schedules. This identification is somewhat...

This paper reconsiders a result obtained by Sargent and Wallace, namely, that price level indeterminacy obtains in their well-known model if the monetary authorities adopt a policy feedback rule for the interest rate rather than the money stock. Since the Federal Reserve seems often to have used...

So-called "spurious regression" relationships between random-walk (or strongly autoregressive) variables are generally accompanied by clear signs of severe autocorrelation in their residuals. A conscientious researcher would therefore not end an investigation with such a result, but would likely...

Consider a rational expectations (RE) model that includes a relationship between variables `x_t` and `z_(t+1)`. To be considered structural and potentially useful as a guide to actual behavior, this model must specify whether `x_t` is influenced by the expectation at t of `z_(t+1)` or,...