We investigate the implications of rule-of-thumb behaviour on the part of consumers or price setters for optimal monetary policy and simple interest rate rules. The existence of such behaviour leads to endogenous persistence in output and inflation; changes the transmission of shocks to these...

We study the implications for optimal monetary policy of introducing habit formation in consumption into a general equilibrium model with sticky prices. Habit formation affects the model's endogenous dynamics through its effects on both aggregate demand and households' supply of output. We show...

Term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis. Small differences in the perceived policy reaction function in VAR models of agent expectations strongly influence the relevance in the transmission...

It is tempting to interpret empirical evidence in a number of recent studies as suggesting that term structure spreads help predict future inflation over moderate horizons of 3 to 5 years. This paper argues that common measures of the predictive power of the term structure spread for future...

This paper reviews the evidence on the sources of business cycles within and across countries and the implications for the importance of borders in business cycles. A simple econometric model is presented and applied to within-U.S. and cross-country data in order to provide a framework for...