Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables. Copyright (c)2008 The Ohio State University.

This paper integrate microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of...

This paper shows that the interaction between money growth and staggered nominal contracts gives rise to a long-run inflation-unemployment tradeoff.

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

Nearly all post-war recessions were preceded by oil-price shocks, but is this because spikes in the price of oil cause economic downturns? At the heart of this question lies an identification problem: oil prices and the state of the world economy are endogenously determined. This paper uses...

We construct a dynamic general equilibrium model in which household debt is sticky in nominal terms and debtor households are credit constrained. Interest payments on debt contracts may be at floating rates or fixed for the duration of the contract. A key result is that a simple static Taylor...