It is well known that the Diamond-Mortensen-Pissarides model exhibits a strong trade-off between cyclical unemployment fluctuations and the size of rents to employment. Introducing endogenous job search effort reduces the strength of the trade-off while bringing the model closer to the data....

Tax-based deficit reduction experiments for the U.S.\@ and EMU-12 are conducted using an open economy model. In welfare terms, raising the consumption tax is the least costly, followed by the labor income tax, then the capital income tax. Use of an open economy model means that the incidence of...

Capturing the boom phase of Pigou cycles and resolving the comovement problem requires positive sectoral comovement. This paper addresses these observations using a two sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy...

In a neoclassical growth model with life-cycle households in which money is held to satisfy a cash-in-advance constraint, the optimal steady state inflation rate is not the Friedman rule -- it is in excess of $20\%$. Lump-sum, age-independent money injections twist and flatten the lifetime...

Recent Bureau of Labor Statistics (BLS) data show labor’s share of income at a historic low. This Policy Discussion Paper explores the BLS calculations with an eye to understanding the factors leading to the recent fall in labor’s share. While data limitations prohibit replication of the BLS...

This Commentary makes a case for Fed action in the event of a stock market bubble. Because stock market prices serve as a signal to business managers to invest, bubbles can mislead managers into investing when it is not profitable. The overinvestment, which becomes apparent after the bubble...

Economic theory says the average income of different regions should grow closer over time. Within the United States and across some of the richer countries, evidence suggests this is true.

The relationship between the unemployment rate and the nonaccelerating inflation rate of unemployment (NAIRU) is presumed to be an inflationary bellwether, but recent inflation predictions based on it have not been successful. The authors explore the reasons for this failure and suggest that it...

Much has been made of the so-called jobless recovery of the past two business cycles—that is, their atypically weak employment growth early in the expansion phase. This Commentary examines the factors that account for this behavior, focusing on two key measures: the probabilities of job...