Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR) instrument rules. Using the standard New...

The paper formulates a model of wage determination in which the firm decides on employment after a monopoly union has determined wages. The novelty is to incorporate investment and capital decisions by firms. The subgame-perfect Nash equilibrium and its comparative statics for wages, capital...

The authors construct a rational expectations model in which the economy switches stochastically between periods of low and high growth. When agents expect growth to be slow, the returns on investment are low and little investment takes place. But if agents expect fast growth, investment is...