Arguments favoring Keynesian models over real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this type of reasoning is Gali (1999). But such conclusions...

This paper examines whether monetary indicators are useful in implementing optimal discretionary monetary policy when the policy maker has incomplete information about the environment. We find that money does not contain useful information for the policy maker, if we calibrate the model to the...

Arguments in favor of Keynesian models as opposed to real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this reasoning is Gali (1999). But certain...

The nature of price dynamics has long been thought important for the origin and duration of business cycles. To investigate this topic, we construct a dynamic stochastic general equilibrium macroeconomic model in which monopolistically competitive firms face fixed costs of changing the nominal...

This paper analyzes the effects of inflation variability on economic growth in a model where money is introduced via a cash-in-advance constraint. In this setting, we find that inflation adversely affects long-run growth, even when the cash-in-advance constraint applies only to consumption. At...

This paper studies the effects of fiscal policies -- depicted as stochastic changes in government spending and distortionary tax rates -- when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending...

How the Federal Reserve reacts to economic activity has significant implications for the way the economy behaves. Yet the importance of these responses has received limited attention in the economic literature. Much of the literature devoted to the economic effects of monetary policy...

After tracing the history of the financial problems facing the Social Security System, the author addresses the economic merits of one key recommendation for returning the system to viability. That recommendation involves investing a portion of the Social Security Trust Fund in equities....

Most empirical studies of the rational expectations hypothesis of the term structure find that the data offer little support for the theory. This observation has led some investigators to search for alternative “irrational” theories of behavior in order to explain the data. The authors, on...

The disinflationary episode of the early 1980s was dramatic in the magnitude of the decline in inflation as well as the significant loss of output. Also, the disinflationary policy was announced and carried out over a three-year period. Thus, this episode has the potential to test competing...