Tobin's proposition that inflation "greases" the wheels of the labor market is studied using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. The simulated method of moments is used to estimate the nonlinear model based on its second-order...

The toolkit adapts a first-order perturbation approach and applies it in a piecewise fashion to solve dynamic models with occasionally binding constraints. Our examples include a real business cycle model with a constraint on the level of investment and a New Keynesian model subject to the zero...

In a stylized DSGE model with an energy sector, the optimal policy response to an adverse energy supply shock implies a rise in core inflation, a larger rise in headline inflation, and a decline in wage inflation. The optimal policy is well approximated by policies that stabilize the output gap,...