The economic profession should demand that that price-determinacy literature adhere to normal academic standards and burdens of proof. By presenting two examples where the non-exploding criterion fails miserably, we demonstrate that that criterion does not universally apply. Therefore, the...

Unanticipated inflation or deflation causes one party of a nominal contract to gain at the expense of the other party, an effect absent in macroeconomic models with one representative consumer or with consumers having identical consumption. In this paper's general dynamic and stochastic...

Contrary to Sargent and Wallace (1975), a central bank’s use of an interest-rate instrument does determine prices when the central bank pursues either a short-term or long-term price target. However, in order for a central bank’s pursuit of a long-term price target to be credible, the public...

The standard ad hoc monetary objective function creates a bias in favor of inflation targeting. Instead, this paper uses the Pareto criterion to assess inflation targeting (IT), price-level targeting (PLT), and nominal-income targeting (NIT). The effect that unanticipated inflation or deflation...

In a pure-exchange economy involving one perishable consumption good and risk-averse consumers, the elasticity of a consumer’s Pareto-efficient consumption with respect to aggregate output equals the reciprocal of the ratio of the consumer’s coefficient of relative risk aversion to average...

Woodford’s (2003) model of a cashless economy is the basis for his book Interest and Prices. Since Woodford assumes complete markets, this paper explicitly includes state-contingent securities with either temporary money or a cash-in-advance constraint to analyze Woodford’s logic. This...

Pareto-efficient consumption in a pure-exchange, one good economy varies over states of nature with respect to only two factors: real aggregate supply and individual utility shocks. One’s optimal contract receipts vary with respect to only these two factors and the ratio of one’s endowment...

This paper introduces the indexing paradox, which states that it if all investors are rational with rational expectations and have a common risk-averse investment performance measure, then no investor can expect to do better than the market. If the cost of indexing is less than the cost of...

The precedent for solving expectational difference equations has been to solve converging equations backwards and diverging equations forward by assuming the solution is bounded. This precedent often leads to incorrect solutions and has less than rigorous foundations. More rigorous procedures...

A relatively simple analysis of central banks pegging interest rates applies whenever prices are determined in a price-flexible model where the central bank pursues a singular price-level or nominal-income target. Applying the model empirically in the U.S. and find that prior to 1980, the...