Accounting for the uncertainty in real-time perceptions of the state of the economy is believed to be critical for monetary policy analysis. We investigate this claim through the lens of a New Keynesian model with optimal discretionary policy and partial information. Structural parameters are...

I interpret the empirical evidence on government spending multipliers using an equilibrium model of unemployment in which workers are not fully insured against the risk of job loss. Consumption of resources by the government affects aggregate spending along two margins: (i) an intensive margin...

This paper presents a Generalized Method of Moments algorithm for estimating the structural parameters of a macroeconomic model subject to the restriction that the coefficients of the monetary policy rule minimize the central bank's expected loss function. The algorithm combines least-squares...

This paper explains US macroeconomic outcomes with an empirical new-Keynesian model in which monetary policy minimizes the central bank's loss function. The presence of expectations in the model forms a well-known distinction between two modes of optimization, termed commitment and discretion....

This paper assesses the value of delegating price level targets to a discretionary central bank in an economy with nominal frictions in both labor and product markets. In contrast to recent studies that demonstrate the benefits of targeting the price of output, model simulations provide evidence...

Habit formation is a fixture of contemporary new-Keynesian models. The vast majority assume that agents form habits strictly over consumption of an aggregate good, leaving open the question of whether it might be preferable to have them form habits over differentiated products instead--an...

I study the welfare gains from commitment relative to discretion in the context of an equilibrium model that features deep habits in consumption. Policy simulations reveal that the welfare gains are increasing in the degree of habit formation and economically significant for a range of values...