Nominal and real interest rates are often viewed from the perspectives of the intuitively appealing Fisher relationship and pure expectations hypothesis. These complementary relationships relate real or nominal long-term interest rates to expected future short-term interest rates and relate...

Inflation reflects the joint behavior of price changes for individual goods and expenditure shares of different goods. We measure the contribution of changing expenditure shares to inflation behavior by constructing alternative inflation measures that hold fixed the weights on price changes for...

Early empirical studies of the New Keynesian Phillips Curve imply implausibly high levels of price stickiness for standard monetary models with Calvo-type nominal rigidities. More recently researchers have found that the addition of real rigidities through firm-specific capital adjustment costs...

State-dependent pricing models are now an operational framework for quantitative business cycle analysis. The analysis in Ball and Romer (1991), however, suggests that such models may be rife with multiple equilibria: in their static model price adjustment is always characterized by...

A discretionary policymaker responds to the state of the economy each period. Private agents' current behavior determines the future state based on expectations of future policy. Discretionary policy thus can lead to dynamic complementarity between private agents and a policymaker, which in turn...

Linear approximation is a popular tool for studying the properties of dynamic economic models. Advocates of linearization have always acknowledged and emphasized that it may be inaccurate unless the researcher restricts attention to small deviations from a steady state. Recent work has...

A transformation of the technological and regulatory environment for telecommunications precipitated a massive boom in the sector, beginning in 1997. Market forecasts of the future of telecommunications became highly uncertain and, as it turned out, highly inaccurate. A dramatic bust began in...

This paper investigates the ability of a region participating in a currency union to affect its inflation differential with respect to the union through fiscal policy. We study the interaction between regional fiscal policy and inflation differentials in a flexible-price, two-region model with...

If monetary policy succeeds in keeping average inflation very low, nominal interest rates may occasionally be constrained by the zero lower bound. The degree to which this constraint has real implications depends on the monetary policy feedback rule and the structure of price-setting. Policy...

Three notions of optimal monetary policy are applied to a model in which firms set their prices for multiple periods. The best steady state inflation rate is slightly positive, but the policy that maximizes present discounted welfare leads in the long run to zero inflation. If commitment is not...