Cogley and Sargent provide us with a very useful tool for empirical macroeconomics: a Gibbs sampler for the estimation of VARs with drifting coefficients and volatilities. The authors apply the tool to a VAR with three variables-inflation, unemployment, and the nominal interest rate-and two...

This paper estimates a dynamic stochastic equilibrium model in which agents use a Bayesian rule to learn about the state of monetary policy. Monetary policy follows a nominal interest rate rule that is subject to regime shifts. The following results are obtained. First, the author's policy...

Central banks pay close attention to inflation expectations. In standard models, however, inflation expectations are tied down by the assumption of rational expectations and should be of little independent interest to policy makers. In this paper, the authors relax the assumption of rational...

For a VAR with drifting coefficients and stochastic volatilities, the authors present posterior densities for several objects that are of interest for designing and evaluating monetary policy. These include measures of inflation persistence, the natural rate of unemployment, a core rate of...

Athanasios Orphanides and John C. Williams' excellent conference paper, "Inflation Scares and Forecast-Based Monetary Policy," contributes importantly to the new and rapidly growing branch of the literature on bounded rationality and learning in macroeconomics. Their paper, like many others,...

Analysts often use financial variables to help predict real activity and inflation. One of the most popular of these variables is the spread between yields on long-term and short-term government instruments, also known as the yield spread. Researchers have shown the spread is a good predictor of...

Forecasts by rational agents contain embedded initial and terminal boundary conditions. Standard time series models generate two types of long-run "endpoints"---fixed endpoints and moving average endpoints. Neither can explain the shifting endpoints implied by postwar movements in the...