Labor supply is unresponsive to permanent changes in wage rates. Thus, income and substitution effects cancel, but are they both close to zero or both large? This paper develops a theory of labor supply where income and substitution effects cancel, taking into account optimization over time,...

The experience of the Great Recession and its aftermath revealed that a lower bound on interestrates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature;it is a policy choice. The central message of this paper is that with readily available...

We analyze monetary policy in a New Keynesian model with durable and nondurable goods each with a separate degree of price rigidity. The model behavior is governed by two New Keynesian Phillips Curves. If durable goods are sufficiently long-lived we obtain an intriguing variant of the well-known...

There has been much discussion about eliminating the 'zero lower bound' by eliminating paper currency. But such a radical and difficult approach as eliminating paper currency is not necessary. Much as during the Great Depression-when countries were able to revive their economies by going off the...

Reported happiness provides a potentially useful way to evaluate unpriced goods and events; but measures of subjective well-being (SWB) often revert to the mean after responding to events, and this hedonic adaptation creates challenges for interpretation. Previous work tends to estimate...

How quickly does marginal utility diminish? It depends on the dimension along which we consider concavity of the utility function. This paper estimates the distribution of heterogeneous curvature parameters in individuals' utility functions from hypothetical choice data, while carefully...

Efficiency wage models of the effort elicitation type have important implications for labor market dynamics. These models have a wide array of discontinuous sunspot equilibria driven by extraneous variables, in addition to well-behaved equilibria characterized by continuous, slowly adjusting...

In August, September and October of 2005, the Monthly Surveys of Consumers fielded by the University of Michigan included questions about the happiness of a nationally representative sample of U.S. adults. The date of each interview is known. Looking at the data week by week, reported happiness...

The marginal propensity to consume out of wealth is important for evaluating the effects of taxation on consumption, assessing the possibility of multiple equilibria due to aggregate demand spillovers, and explaining observed variations in consumption. It is also a component of the interest...

This paper addresses the issue of how to give optimal advice about monetary policy when it is known that the advice may not be heeded. We examine a simple macroeconomic model in which monetary policy has the ability to stabilize output by offsetting exogenous shocks to aggregate demand. The...