I show that multiple equilibria are a general property of economies under full monetary policy discretion. Three simple conditions are sufficient to rule out, generically, a unique equilibrium in a static economy. The key departure from Barro and Gordon (1983) is to consider bounded welfare...

Lack of commitment in monetary policy leads to the well known Barro-Gordon inflation bias. In this paper, we argue that two phenomena associated with the time inconsistency problem have been overlooked in the exchange rate debate. We show that, absent commitment, independent monetary policy can...

We provide a tractable model to study monetary policy under discretion. We focus on Markov equilibria. For all parametrizations with an equilibrium inflation rate around 2%, there is a second equilibrium with an inflation rate just above 10%. Thus the model can simultaneously account for the low...

We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus,...

The Barro-Gordon inflation bias has provided the most influential argument for fixed exchange rate regimes. However, with low inflation rates now widespread, credibility concerns seem no longer relevant. Why give up independent monetary policy to contain an inflation bias that is already under...

A number of stylized facts have been documented about the extensive margin of trade---which firms export, and how many products they send to how many destinations. We argue that the sparse nature of trade data is crucial to understanding these stylized facts. Typically the number of...

Exporters are few-less than one-fifth among U.S. manufacturing firms-and are larger than non-exporting firms-about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). The authors find that the...

The U.S. non-financial corporate sector became a net lender vis-a-vis the rest of the economy in the early 2000s. We document this fact in the aggregate and firm-level data. We then develop a structural dynamic model with investment to study the firms' financing decisions. Debt is fiscally...

reallocation are halved.

We consider a simple state verification technology in a dynamic private information economy. We find that the marginal benefit may be below the marginal cost of investment under the constrained efficient allocation. In particular, if the planner can verify a the type of a sufficiently large...