Previous literature shows that in the presence of staggered price setting, high trend inflation induces not only a large loss in steady-state output relative to its natural rate but also indeterminacy of equilibrium under the Taylor rule. This paper examines the implications of a "smoothed-off"...

Despite the widespread belief that technology shocks are the main source of business fluctuations, recent empirical studies indicate that in the absence of financial frictions, a shock to the marginal efficiency of investment is the main source and is closely related to financial conditions for...