Results 1  10
of
24
Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory
 Journal of Economics
, 2000
"... We estimate a forwardlooking monetary policy reaction function for the postwar United States economy, before and after Volcker’s appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker ..."
Abstract

Cited by 648 (8 self)
 Add to MetaCart
We estimate a forwardlooking monetary policy reaction function for the postwar United States economy, before and after Volcker’s appointment as Fed Chairman in 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the VolckerGreenspan period appears to have been much more sensitive to changes in expected in�ation than in the preVolcker period. We then compare some of the implications of the estimated rules for the equilibrium properties of in�ation and output, using a simple macroeconomic model, and show that the VolckerGreenspan rule is stabilizing. I.
Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
, 2003
"... We present a model embodying moderate amounts of nominal rigidities that 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 features, th ..."
Abstract

Cited by 614 (24 self)
 Add to MetaCart
We present a model embodying moderate amounts of nominal rigidities that 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 features, the most important are staggered wage contracts which have an average duration of three quarters, and variable capital utilization.
NEW PERSPECTIVES ON MONETARY POLICY, INFLATION, AND THE BUSINESS CYCLE
, 2002
"... The present paper provides an overview of recent developments in the analysis of monetary policy in the presence of nominal rigidities. The paper emphasizes the existence of several dimensions in which the recent literature provides a new perspective on the linkages among monetary policy, inflation, ..."
Abstract

Cited by 63 (1 self)
 Add to MetaCart
The present paper provides an overview of recent developments in the analysis of monetary policy in the presence of nominal rigidities. The paper emphasizes the existence of several dimensions in which the recent literature provides a new perspective on the linkages among monetary policy, inflation, and the business cycle. It is argued that the adoption of an explicitly optimizing, general equilibrium framework has not been superfluous; on the contrary, it has yielded many insights which, by their nature, could hardly have been obtained with earlier nonoptimizing models.
What do we know about macroeconomics that Fisher and Wicksell did not? Quarterly
 Journal of Economics
, 2000
"... This essay argues that the history of macroeconomics during the twentieth century can be divided into three epochs. Pre1940: a period of exploration, during which all the right ingredients were developed. But also a period where confusion reigned, because of the lack of an integrated framework. Fro ..."
Abstract

Cited by 22 (0 self)
 Add to MetaCart
This essay argues that the history of macroeconomics during the twentieth century can be divided into three epochs. Pre1940: a period of exploration, during which all the right ingredients were developed. But also a period where confusion reigned, because of the lack of an integrated framework. From 1940 to 1980: a period during which an integrated framework was developed—from the ISLM to dynamic general equilibrium models. But a construction with an Achilles ’ heel, too casual a treatment of imperfections, leading to a crisis in the late 1970s. Since 1980: a new period of exploration, focused on the role of imperfections in macroeconomics. Exploration often feels like confusion. But behind it is one of the most productive periods of research in macroeconomics. The editors of the Quarterly Journal of Economics have commissioned a series of essays on the theme: what do we know about �eld x that Marshall did not? In the case of macroeconomics, Marshall is not the right reference. But if we replace his name with those of Wicksell and of Fisher, the two dominant �gures in
The New ISLM Model: Language, Logic and Limits
 Federal Reserve of Richmond Quarterly Economic Review
, 2000
"... Recent years have witnessed the development of a New ISLM model that is increasingly being used to discuss the determination of macroeconomic activity and the design of monetary policy rules. It is sometimes called an “optimizing ISLM model ” because it can be built up from microfoundations. It is ..."
Abstract

Cited by 14 (1 self)
 Add to MetaCart
Recent years have witnessed the development of a New ISLM model that is increasingly being used to discuss the determination of macroeconomic activity and the design of monetary policy rules. It is sometimes called an “optimizing ISLM model ” because it can be built up from microfoundations. It is alternatively called an “expectational ISLM model” because the traditional model’s behavioral equations are modified to include expectational terms suggested by these microfoundations and because the new framework is analyzed using rational expectations. The purpose of this article is to provide a simple exposition of the New ISLM model and to discuss how it leads to strong conclusions about monetary policy in four important areas. • Desirability of price level or inflation targeting: The new model suggests that a monetary policy that targets inflation at a low level will keep economic activity near capacity. If there are no exogenous “inflation shocks, ” then full stabilization of the price level will also maintain output at its capacity level. More generally, the new model indicates that timevarying inflation targets should not respond to many economic disturbances, including shocks to productivity, aggregate demand, and the demand for money. • Interest rate behavior under inflation targeting: The new model incorporates the twin principles of interest rate determination, originally developed by Irving Fisher, which are an essential component of modern macroeconomics. The real interest rate is a key intertemporal relative
Euler Equations and Money Market Interest Rates: A Challenge for Monetary Policy Models
, 2002
"... Standard macroeconomic models (with or without nominal rigidities) assume that the money market interest rate is equal to the interest rate implied by a consumption Euler equation in which the real (nominal) interest rate is proportional to the expected growth rate of real (nominal) consumption. The ..."
Abstract

Cited by 12 (0 self)
 Add to MetaCart
Standard macroeconomic models (with or without nominal rigidities) assume that the money market interest rate is equal to the interest rate implied by a consumption Euler equation in which the real (nominal) interest rate is proportional to the expected growth rate of real (nominal) consumption. The empirical literature shows that a monetary tightening slows consumption growth for a few quarters. A decline in expected consumption growth will reduce the real interest rate implied by the Euler equation. This is a problem because the empirical literature shows that money market rates respond in the opposite direction. We calculate real and nominal interest rates first for standard, additively separable preferences with constant relative risk aversion and then for three specifications of preferences with habit persistence. In addition to presenting summary statistics, we plot estimates of the time series of interest rates from 1965 to 1999. We find that money market rates are low when the implied Euler equation rates are high and the spread between them appears to vary systematically with indicators of monetary policy. Most strikingly, for several of the specifications, money market interest rate rose relative to the consumption Euler equation rates during the period of Federal Reserve tightening in 19791982. This poses a challenge for models that equate the two.
PricingtoMarket, Staggered Contracts, and Real Exchange Rate Persistence
, 1999
"... : This paper explores an explanation for the high degree of persistence and volatility observed in real exchange rate data. In particular, it considers a class of preferences that are translog in form, which exhibit the property that the elasticity of demand is not constant. This property is sho ..."
Abstract

Cited by 10 (0 self)
 Add to MetaCart
: This paper explores an explanation for the high degree of persistence and volatility observed in real exchange rate data. In particular, it considers a class of preferences that are translog in form, which exhibit the property that the elasticity of demand is not constant. This property is shown to be important for generating pricingtomarket behavior in pricesetting firms and for helping staggered contracts to generate endogenous persistence. The paper finds that translog preferences generate significantly greater persistence in the real exchange rate than does the standard CES specification. While the model cannot fully reproduce the high level of persistence observed in the data under plausible parameter values, it can reproduce the level of volatility. Key Words: real exchange rate, endogenous persistence, pricingtomarket JEL Classification: F41, F31 ________________________ Special thanks go to Charles Engel and Patrick Asea for detailed comments. We also thank ...
On Endogenously Staggered Prices
 Review of Economic Studies
, 2002
"... Taylor's model of staggered contracts is an in uential explanation for nominal inertia and the persistent real e ects of nominal shocks. However, in standard imperfect competition models, if agents are allowed to choose the timing of pricing decisions, they will typically choose to synchronize. This ..."
Abstract

Cited by 9 (1 self)
 Add to MetaCart
Taylor's model of staggered contracts is an in uential explanation for nominal inertia and the persistent real e ects of nominal shocks. However, in standard imperfect competition models, if agents are allowed to choose the timing of pricing decisions, they will typically choose to synchronize. This paper provides a simple model of imperfect competition which produces stable staggering. Our argument relies on strategic interaction at two levels  between rms within an industries, and across industries  and produces a continuum of stable staggered price equilibria.
Evaluating the Calvo model of sticky prices
 NBER Working Paper, No W10617
, 2004
"... Can variants of the classic Calvo (1983) model of sticky prices account for the statistical behavior of post war US inflation? We develop and test versions of the model for which the answer to this question is yes. We then investigate whether these models imply plausible degrees of inertia in price ..."
Abstract

Cited by 7 (1 self)
 Add to MetaCart
Can variants of the classic Calvo (1983) model of sticky prices account for the statistical behavior of post war US inflation? We develop and test versions of the model for which the answer to this question is yes. We then investigate whether these models imply plausible degrees of inertia in price setting behavior by firms. Our answer to this second question is also yes. Specifically, according to the estimated version of our preferred model, US inflation is consistent with firms reoptimizing prices on average at least once every two quarters.
Predetermined Prices and the Persistent Effects of Money on Output
, 2001
"... The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada. iii ..."
Abstract

Cited by 7 (0 self)
 Add to MetaCart
The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada. iii