We study the effects of monetary shocks in a model of state-dependent price and wage adjustment based on “control costs”. Suppliers of retail goods and of labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities. Stickiness arises because...

We implement a tractable state-dependent Calvo price-setting signal dependent on inflation and aggregate competitiveness. This allows us to derive a New Keynesian Phillips Curve (NKPC) expressed in terms of the actual levels of variables-rather than in-deviation from "steady state" form - and...

Macroeconomic and microeconomic data paint conflicting pictures of price behavior. Macroeconomic data suggest that inflation is inertial. Microeconomic data indicate that firms change prices frequently. We formulate and estimate a model which resolves this apparent micro - macro conflict. Our...

This paper examines the effects of expenditure-based fiscal consolidation when credibility as to whether the cuts will be long-lasting is imperfect. We contrast the impact limited credibility has when the consolidating country has the means to tailor monetary policy to its own needs, with the...

In this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has...

This paper presents estimates of the effects of monetary policy shocks on the Swedish economy. A theoretical model of an open economy is used to identify a structural VAR model. The empirical results from the identified VAR model are compared with two less structural approaches for...

In a simple dynamic macroeconomic model, it is shown that uncertainty about structural parameters does not necessarily lead to more cautious monetary policy, refining the accepted wisdom concerning the effects of parameter uncertainty on optimal policy. In particular, when there is uncertainty...

This paper proposes the use of the two-factor term-structure model of Longstaff and Schwartz (1992a,LS) to estimate the risk-neutral density (RND) of the futur short-term interest rate. The resulting RND can be interpreted as the market´s estimate of the density of the future short-term...

This paper investigates the performance of various monetary rules in an open economy with incomplete exchange rate pass-through. Implementing monetary policy through an exchange rate augmented policy rule does not improve social welfare compared to using an optimized Taylor rule, irrespective of...

This paper analyzes the central bank s optimal objective function in a small open economy model allowing for incomplete exchange rate pass-through. The results indicate that there are welfare gains from different types of monetary policy inertia. The welfare improvements of exchange rate...