In his presidential address to the American Economic Association, Robert Lucas claimed that the welfare costs of the business cycle in the United States equaled .05 percent of consumption. His calculation compared the utility of a representative consumer receiving actual per-capita consumption...

This paper attempts to explain one version of an empirical puzzle noted by Mankiw (2003): a Baumol-Tobin inventory-theoretic money demand equation predicts that the average U.S. adult should have held approximately $551.05 in currency and coin in 1995, while data show an average of $100. The...

The process of constructing impulse-response functions (IRFs) and forecast-error variance decompositions (FEVDs) for a structural vector autoregression (SVAR) usually involves a factorization of an estimate of the error-term variance-covariance matrix V. Examining residuals from a monetary VAR,...

The Gibson paradox, long observed by economists and named by John Maynard Keynes (1936), is a positive relationship between the interest rate and the price level. This paper explains the relationship by means of interest-rate, cost-push inflation. In the model, spending is driven in part by...

The development of the permanent income/life cycle consumption hypothesis was a key blow to Keynesian and Kaleckian economics, and, according to George Akerlof, it "set the agenda" for modern neoclassical macroeconomics. This paper focuses on the relationship of housing wealth to neoclassical...

In dealing with the problematic relationship of morality to rational choice theory, neoclassical economists since Lionel Robbins have often argued that they can incorporate moral values into consumer theory by putting those values into the utility function. This paper tests the viability of such...

Since Christopher Sims's "Macroeconomics and Reality" (1980), macroeconomists have used structural VARs, or vector autoregressions, for policy analysis. Constructing the impulse-response functions and variance decompositions that are central to this literature requires factoring the...

Most recent discussions of deflation seem to overlook the main dangers posed by a deflationary economy and appear to offer superficial solutions. L. Randall Wray and Dimitri B. Papadimitriou argue in this brief that, barring drastic changes in asset and output prices, deflation itself is not the...

Projections of an impending crisis in financing Social Security depend on unduly pessimistic assumptions about basic demographic and economic variables. Moreover, even if the assumptions are accepted, the projected gap between Social Security revenues and expenditures would not constitute a...