This paper formulates and estimates a three-shock US business cycle model. The estimated model accounts for a substantial fraction of the cyclical variation in output and is consistent with the observed inertia in inflation. This is true even though firms in the model reoptimize prices on...

We study how determinacy and expectational stability (E-stability) of rational expectations equilibrium may be affected by monetary policy when the cost channel of monetary policy matters. We focus on both instrumental Taylor-type rules and optimal target rules. We show that standard instrument...

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these...

We develop the theory of price-level determination in a range of models using both ad hoc policy rules and jointly optimal monetary and fiscal policies and discuss empirical issues that arise when trying to identify monetary–fiscal regime. The chapter concludes with directions in which...

Observed inflation targets around the industrial world are concentrated at two percent per year. This chapter investigates the extent to which the observed magnitudes of inflation targets are consistent with the optimal rate of inflation predicted by leading theories of monetary non-neutrality....

This paper studies the implication, in terms of welfare and monetary policy, of unequal degrees of competition across members of a currency area. We look at two ways in which the degree of competition in the market for goods can affect welfare in a currency area. One is through different average...

This paper studies the implication, in terms of welfare and monetary policy, of unequal degrees of competition across members of a currency area. We look at two ways in which the degree of competition in the market for goods can affect welfare in a currency area. One is through different average...

There are few if any technical problems involved in reversing the unconventional monetary policies - quantitative easing, credit easing and enhanced credit support - implemented by central banks around the world as short-term nominal interest rates became constrained by the zero lower bound. The...

This paper quantifies the deterioration of achievable stabilization outcomes when monetary policy operates under imperfect credibility and weak anchoring of long-term expectations. Within a medium-scale DSGE model, we introduce through a simple signal extraction problem, an imperfect knowledge...

We present a thought-provoking study of two monetary models: the cash-in-advance and the Lagos and Wright (2005) models. We report that the different approach to modeling money - reduced-form vs. explicit role - neither induces theoretical nor quantitative differences in results. Given...