One of the most significant characteristics of optimizing models is that the behavioral equations involved are typically forward looking, i.e., agents are concerned about the future rather than the past. This creates difficulties when modelling some of the business-cycle patterns widely observed...

This paper examines the way in which structural changes in the level of steady-state competitiveness and the trend rate of inflation affect inflation responses to monetary policy shocks, in scenarios chosen to capture broadly the conditions of the UK economy in the early 1990s and more recently....