We assess the ability of new open economy models to match OECD business cycle data. We adopt a canonical new open economy model with varying degrees of nominal inertia, monopolistic competition and distribution costs and assess the contribution of each facet of this model to help explain jointly...

Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation-output space, we identify the key stochastic influences on inflation without...

Stabilization policy involves joint monetary and fiscal rules. We develop a model enabling us to characterize systematic simple monetary and fiscal policy over the business cycle. We principally focus on the following question: what are the key properties of the joint simple rule governing the...

We outline a number of ‘stylised’ facts on the UK business cycle obtained from analysis of the long-run UK annual dataset. The findings are to some extent standard. Consumption and investment are pro-cyclical, with productivity playing a dominant role in explaining business cycle...

When the monetary authority controls the short-term interest rate we find that under a regime of permanent (and even persistent but temporary) deficits that a strict upper bound on the feasible interest rate sequence is present. More generally, the satisfaction of the fiscal authority’s...

Central bank independence is widely thought be a sine qua non of a credible commitment to price stability. The surprise decision by the UK government to grant operational independence to the Bank of England in 1997 affords us a natural experiment with which to gauge the impact on the yield curve...