Modifying the standard New-Keynesian model to replace firms' full information and sticky prices with flexible prices and dispersed information, and imposing mild and plausible restrictions on the monetary authority's decision rule, produces the striking results that (i) there exists a unique and...

Why is inflation so much lower and at the same time more stable in developed economies in the 1990s, compared with the 1970s? This paper suggests that the United Kingdom, United States and other countries may have escaped from a volatile inflation equilibrium. Our argument builds on the story...

The New Keynesian Phillips Curve plays a central role in modern macroeconomic theory. A vast empirical literature has estimated this structural relationship over various post-war full samples. While it is well known that in a standard sticky price model a 'weak' central bank response to...

We establish a set of novel empirical facts concerning cross-section distributions of inflation expectations reported in surveys. Almost all the variation in expectations about their mean may be summarized via three factors we call disagreement, skew, and shape. We adopt a functional principal...

This paper brings together modern empirical techniques, a sign-restricted structural vector autoregression, with contemporary high frequency data to answer an old question – what role did macroeconomic policy play in Britain’s high unemployment and deflation in the years 1919 to 1938. Its...

We show that exchange rate pass-through to consumer prices varies not only across countries, but also over time. Previous literature has highlighted the role of an economy's ‘structure' — such as its inflation volatility, inflation rate, use of foreign currency invoicing, and openness — in...

In this paper, we use an estimated DSGE model of the UK economy to investigate perceptions of the effectiveness of monetary policy since the onset of the 2007–08 financial crisis in a number of measures of deflation probability — the Survey of Economic Forecasts, financial-market option...

This paper provides a quantitative answer to the ‘sectoral comovement puzzle'. We extend the two-sector New Keynesian model with flexible durable good prices and sticky non-durable good prices by:(i) labour search and matching frictions and (ii) internal habit formation in non-durable...

This paper aims to contribute to our understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. We first obtain an empirical representation of the monetary...

Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool's skill composition, and hence the output produced...