This paper discusses a rigorous empirical standard for monetary policy models. The motivation for this discussion is that, if one wishes to conduct welfare analysis , one must be reasonably confident that the model provides a good approximation to underlying consumer and firm behavior over the...

This paper compares different methods for estimating forward-looking output and inflation Euler equations and shows that weak identification can be an issue in conventional GMM estimation. The authors propose a GMM procedure that imposes the dynamic constraints implied by the forward-looking...

The seminal work of Phelps, Taylor, and Calvo developed forward-looking models of price determination that imparted inertia to the price level. These models incorporate expectations of future prices and excess demand by imposing constraints (typically lag-lead symmetry constraints) that force...

The Beveridge curve -- the scatter plot of unemployment rates versus vacancy rates -- has recently shifted inward dramatically. While the Beveridge curve is often used to summarize the state of the labor market, it is not a structural economic relationship. Thus, in order to understand the labor...

Many in the press and general public see consumer sentiment as a significant, independent force in the economy. Some suggest that sentiment indexes forecast future economic activity, others that changes in consumer sentiment actually drive business cycle fluctuations. ; This article shows that...

Widely accepted theories of consumer behavior suggest that consumers act according to a lifetime budget, spending against future earnings so long as they are predictable. Yet this study finds that many consumers respond to changes in income only when they are realized. Furthermore, adjustment...

Rumors of the death of the Phillips curve appear to have been greatly exaggerated. In fact, the Phillips curve is alive and well, and living in a good number of (although certainly not all) widely used macroeconometric models. The author takes the view that the primary reason for its longevity...