The FOMC has two objectives: maximizing sustainable economic growth and maintaining price stability. At times-like the past year-these goals appear to be in conflict. This Commentary outlines some economic theory that suggests that in the long run, the FOMC can achieve its two objectives by...

An inquiry into why the Bank of Canada was unable to bridle the inflation of the 1970s by controlling money growth.

Statistics that measure labor market activity, such as employment and unemployment, are often interpreted in the press and by politicians as measures of economic performance and social well-being. Discussions that focus on cross-country comparisons of unemployment, for example, seem to be based...

An investigation of whether economic theory supports the claim that a technology shock can change the "natural rate of unemployment."

An innovation in this paper is to introduce a time-to-build technology for the production of market capital into a model with home production. The paper’s main finding is that the two anomalies that have plagued all household production models—the positive correlation between business and...

Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since real business cycle theory suggests that the return to capital should be measured by the return to aggregate market capital, not stock market returns. We construct a...

Recent monetary history has been characterized by monetary authorities that appear to shift periodically between distinct policy regimes associated with higher or lower average rates of money creation. As policy regimes are not directly observable and as the rate of monetary expansion varies for...

Results in Lucas (1987) suggest that if public policy can affect the growth rate of the economy, the welfare implications of alternative policies will be large. In this paper, a stochastic, dynamic general equilibrium model with endogenous growth and money is examined. In this setting, inflation...

Empirically, real wages exhibit relatively little cyclical variation and a weak cyclical pattern. Early real business cycle (RBC) models predict, to the contrary, large, procyclical real wage movements. Incorporating efficiency wages into a RBC environment would seem promising since one...

Recent Bureau of Labor Statistics (BLS) data show labor’s share of income at a historic low. This Policy Discussion Paper explores the BLS calculations with an eye to understanding the factors leading to the recent fall in labor’s share. While data limitations prohibit replication of the BLS...