This paper develops the quantitative implications of optimal fiscal policy in a business cycle model. In a stationary equilibrium, the ex ante tax rate on capital income is approximately zero. The tax rate on labor income fluctuates very little and inherits the persistence properties of the...

Hours worked and the return to working are weakly correlated. Traditionally, the ability to account for this fact has been a litmus test for macroeconomic models. Existing real-business-cycle models fail this test dramatically. The authors modify prototypical real-business-cycle models by...

This paper studies P. Cagan's model of the German hyperinflation under the hypothesis that adaptive expectations are rational. It shows that inference about the key money demand elasticity parameter, a, is very senstitive to the specification of the dynamic interaction of the unobserved money...

This paper assesses the impact of a monetary policy shock on the U.S. economy. The authors' measures of contractionary monetary policy shocks are associated with a fall in various monetary aggregates and a rise in the federal funds rate, declines in different measures of real activity, and sharp...

This paper presents a flexible-price, quantitative general equilibrium model with the property that a positive money supply shock drives the nominal interest rate down, and aggregate employment, output, and the real wage up. These implications are broadly consistent with postwar U.S. data. The...

Measured aggregate U.S. consumption does not behave like a martingale. The authors develop and test two variants of the permanent income model which reflect that. In both, agents make decisions in continuous time. In one variant, martingale behavior holds; serial persistence in measured...

Frontmatter -- CONTENTS -- ILLUSTRATIONS -- TABLES -- PREFACE -- CONTRIBUTORS -- 1. Economic Growth and Business Cycles -- 2. Recursive Methods for Computing Equilibria of Business Cycle Models -- 3. Computing Equilibria of Nonoptimal Economies -- 4. Models with Heterogeneous Agents -- 5....