Monetary policy in an economy with both downwardly rigid wages and a transaction motive for money demand is studied using a dynamic stochastic general equilibrium model. The two key features of the model imply that both Tobin's “inflation grease” argument and Friedman's rule are operative,...

We use a perturbation method to solve the incomplete markets model with aggregate uncertainty described in den Haan et al. [Computational suite of models with heterogeneous agents: incomplete markets and model uncertainty. Journal of Economic Dynamics & Control, this issue]. To apply that...

This paper solves the multi-country RBC model described in den Haan et al. (this issue) and Juillard and Villemot (this issue), using a perturbation method. We explain how to apply first- and second-order versions of the gensys2.m algorithm to this model. The perturbation method is...

Since Kydland and Prescott (1977) and Barro and Gordon (1983), most studies of the problem of the inflation bias associated with discretionary monetary policy have assumed a quadratic loss function. We depart from the conventional linear-quadratic approach in favor of a projection method...

This paper uses a two country DSGE model to examine the effects of tax-based vs. expenditure-based fiscal consolidation in a currency union. We find three key results. First, given limited scope for monetary accommodation, tax-based consolidation tends to have smaller adverse effects on output...

This paper studies the trade-offs between stabilizing CPI inflation and alternative measures of the output gap in Ramses, the Riksbank׳s estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our main finding is that the trade-off between stabilizing CPI...

I show that a standard RBC-model can be used to explain why hours per capita decrease in response to a permanent technology shock when hours enter a vector autoregressive (VAR) in first differences and why hours increase when hours enter in levels. There are two parts to my argument. First,...