It is commonly believed that a monetary policy that targets the price level reduces the long-term variability of the price level, but only at the cost of increased variability of both inflation and output. We develop a model in which the one-step-ahead variance of output and the price level are...

Using data from Backus and Kehoe (1992) we establish the existence of a positive relationship between the price-output correlation and the variance of output. This is consistent with the idea that reductions in the magnitude of aggregate demand shocks have been the dominant cause of changes in...

It is widely accepted that the character of U.S. business cycles has changed in the post World War II era. In particular, as measured by the NBER business cycle dates, business expansions have grown from an average of 26.5 months in the prewar period to 51.5 months in the post-war period....

Several authors have reported finding a negative correlation between prices and output for the U.S. in the post WW II data. This paper presents a simple aggregate supply and demand model to show that this correlation may reflect the actions of an optimizing monetary policy maker rather than the...

Several empirical papers have established the fact of a negative price-output correlation for the United States in the post WWII era. Much of this work appears to interpret the sign of this correlation under the assumption that monetary policy is passive. This paper uses a simple aggregate...

It is commonly believed that a monetary policy that targets the price level reduces the long-term variability of the price level but only at the cost of increased variability in both inflation and output. This paper shows that this result may not hold so long as increases in the real rate of...