A solution method and an estimation method for nonlinear rational expectations models are presented in this paper. The solution method can be used in forecasting and policy applications and can handle models with serial correlation and multiple viewpoint dates. When applied to linear models, the...

This paper examines several episodes in U.S. monetary history using the framework of an interest rate rule for monetary policy. The main finding is that a monetary policy rule in which the interest rate responds to inflation and real output more aggressively than it did in the 1960s and 1970s,...

This paper reviews the role of temporary price and wage rigidities in explaining the dynamic relationship between money, real output, and inflation. It summarizes microeconomic data on price and wage setting behavior, and argues that staggered price and wage setting models provide the most...

The paper develops a two-country model with flexible exchange rates and perfect capital mobility, for evaluating the alternative macroeconomic policy rules. Macroeconomic performance is measured in terms of fluctuations in inflation and output. Expectations are rational, and prices are sticky;...

This paper summarizes the results of an empirical study of alternative international monetary arrangements using a multicountry, rational expectations, econometric model of the G-7 countries; Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. The model is fit to...

This paper reviews and contrasts different views about the role of expectations in policy research and practice. Recently, two widely different views seem to have dominated the analysis of policy questions.One view, which is referred to as the "new classical macroeconomic"view, is that...

This paper considers the problem of calculating optimal policy rules to stabilize fluctuations in investment in an economy where firms' investment behavior can be described by a dynamic optimization model. In the optimization model, the dynamics of investment are generated by heterogeneous...

A computationally feasible method for the full information maximum likelihood estimation of models with rational expectations is described in this paper. The stochastic simulation of such models is also described. The methods discussed in this paper should open the way for many more tests of the...

This paper examines the role of union wage contracts in the persistence of inflation, and the implication of these contracts for the problem of disinflation in the United States. A quantitative model of overlapping con- tracts explicitly oriented toward the major union sector is developed. The...

Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand--the change in government purchases of goods and services that the multiplier...