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Working Paper
How well does the New Keynesian sticky-price model fit the data?
The New Keynesian sticky-price model has become increasingly popular for monetary-policy analysis. However, there have been conflicting results on the empirical performance of the model. In this paper, I attempt to reconcile these conflicting claims by examining various specifications of the model within the context of a single framework. I find that the New Keynesian model does not fit the U.S. data well; in particular, the model requires additional lags of inflation not implied by the model under rational expectations. These additional lags have the interpretation that some fraction of the ...
Working Paper
Is inflation sticky?
Working Paper
Monetary Policy Strategies for a Low-Rate Environment
In low-rate environments, policy strategies that involve holding rates ?lower for longer? (L4L) may mitigate the effects of the effective lower bound (ELB). However, these strategies work in part by managing the public?s expectations, which is not always realistic. Using the Fed?s large-scale macroeconometric model, we study the effectiveness of L4L policies when financial market participants are forward-looking but other agents are not. We find that the resulting limited ability to manage expectations reduces but does not eliminate the advantages of L4L policies. The best policies provide ...
Working Paper
What's happened to the Phillips curve?
The simultaneous occurrence in the second half of the 1990s of low and falling price inflation and low unemployment appears to be at odds with the properties of a standard Phillips curve. We find this result in a model in which inflation depends on the unemployment rate, past inflation, and conventional measures of price supply shocks. We show that, in such a model, long lags of past inflation are preferred to short lags, and that with long lags, the NAIRU is estimated precisely but is unstable in the 1990s. Two alternative modifications to the standard Phillips curve restore stability. One ...
Working Paper
Does overtime use affect marginal cost?
Working Paper
Using structural shocks to identify models of investment
This paper uses the response of investment to identified structural shocks to investigate some key issues, including the nature of adjustment costs and investment's responsiveness to user cost. In the estimation, the model parameters are chosen to match as closely as possible the impulse responses from an identified VAR. In the preferred results, both investment- and capital-stock adjustment costs are important; the size of the capital-stock adjustment costs is in line with estimates from firm-level studies; the investment-adjustment costs suggest rapid adjustment of investment to its desired ...
Working Paper
Monetary policy and inflation dynamics
Since the early 1980s, the United States economy has changed in some important ways: Inflation now rises considerably less when unemployment falls and the volatility of output and inflation have fallen sharply. This paper examines whether changes in monetary policy can account for these phenomena. The results suggest that changes in the parameters and shock volatility of monetary policy reaction functions can account for most or all of the change in the inflation-unemployment relationship. As in other work, monetary-policy changes can explain only a small portion of the output growth ...
Working Paper
Economic performance under price stability
Working Paper
Estimates of the productivity trend using time-varying parameter techniques
In the second half of the 1990s, U.S. productivity growth moved up to rates not seen in several decades. In this paper, I use time-varying parameter techniques to isolate trend from cyclical movements in productivity and to obtain an estimate of the trend rate of productivity growth. I examine models both with and without an explicit role for capital accumulation. I find that in the models without an explicit role for capital accumulation, trend productivity growth is estimated to have moved up from around 1-1/2 percent in the period from the early 1970s to the mid 1990s, to about 2-1/2 ...
Discussion Paper
An Estimate of the Long-Term Neutral Rate of Interest
This note proposes a new measure of the high-frequency equilibrium interest rate, one that falls naturally out of a common textbook notion of the economy's equilibrium interest rate--and which is rooted in one particularly simple and well-known model.