Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences...

The key question asked by standard monetary models used for policy analysis is how do changes in short term interest rates affect the economy. All of the standard models imply that such changes in interest rates affect the economy by altering the conditional means of the macroeconomic aggregates...

The authors evaluate the Friedman-Schwartz hypothesis--that a more accommodative monetary policy could have greatly reduced the severity of the Great Depression. To do this, they first estimate a dynamic, general equilibrium model using data from the 1920s and 1930s. Although the model includes...

An exogenous oil price shock raises inflation and contracts output, similar to a negative productivity shock. In the standard New Keynesian model, however, this does not generate any trade-off between inflation and output gap volatility: under a strict inflation-targeting policy, the output...

A demonstration that optimal monetary policy can be either procyclical or countercyclical in a model where wages are "sticky" because of a nominal contracting constraint.