This paper studies whether fiscal policy satisfies a borrowing constraint. Direct tests of the present-value constraint are rare, despite widespread discussion of the feasibility of current policy. We examine monthly data on Canadian federal government finances using tests for cointegration. We...

Business cycles may be defined or measured by parametrizing detrending filters to maximize the ability of a business-cycle model to match the moments of the remaining cycles. Thus a theory can be used to guide cycle measurement. We present two applications to U.S. postwar data. In the first...

Deviations from ergodicity in fundamentals may give rise to apparent bubbles (non-stationary residuals) in time series models of asset prices if an econometrician is unaware of them. This paper examines a number of such deviations in the form of expected, future, regime changes and explicitly...

Macroeconomic theories in which there is a fixed cost to changing prices have proliferated recently. This paper solves a menu-cost pricing problem faced by a monopolistic firm in continuous time and subject to both the stochastic aggregate price level emphasized by Sheshinski and Weiss (1983)...

One aspect of calibration in macroeconomics is the notion that free parameters of models should be chosen by matching certain moments of the simulated models with those of actual data. We formally examine this notion by treating the process of calibration as an econometric estimator. A numerical...

The Bank of Canada’s inflation-targeting regime currently relies on imperfect measures of inflation and inflation expectations. The overall performance of monetary policy would be improved if new measures of inflation and inflation expectations were incorporated into the Bank of Canada’s...

The Great Moderation refers to the fall in U.S. output growth volatility in the mid-1980s. At the same time, the United States experienced a moderation in inflation and lower average inflation. Using annual data since 1890, we find that an earlier, 1946 moderation in output and consumption...

We provide a new way to filter US inflation into trend and cycle components, based on extracting long-run forecasts from the Survey of Professional Forecasters. We operate the Kalman filter in reverse, beginning with observed forecasts, then estimating parameters, and then extracting the...

Much research studies US inflation history with a trend-cycle model with unobserved components. A key feature of this model is that the trend may be viewed as the Fed's evolving inflation target or long-horizon expected inflation. We provide a new way to measure the slowly evolving trend and the...

What explains the widespread fear of deflation? This article reviews the history of thought, economic history, and empirical evidence on deflation, with a view to answering this question. It also outlines informally the main effects of deflation in applied monetary models. The main finding is...