A dynamic stochastic model of global equilibrium, where countries outside the US face higher risk than the US itself, predicts current account surpluses in the RoW and US deficits. With Loss Aversion, such precautionary savings can cause substantial ‘global imbalances’, particularly...

Optimal growth models aim at explaining long run trends of growth under the strong assumption of full efficiency in the allocation of resources. As a result, the steady state time paths of the main economic aggregates reflect constant, exogenous or endogenous, growth. To introduce business...

Official adjustments of the budget balance to the cycle assume that the only category of gov-ernment spending that responds automatically to the cycle is unemployment compensation. But estimates show otherwise. Payments for pensions, sickness, subsistence, invalidity, childcare and subsidies of...

To match the stylised facts of goods and labour markets, the canonical New Keynesian model augments the optimising neoclassical growth model with nominal and real rigidities. We ask what the implications of this type of model are for asset prices. Using a second-order numerical solution to the...

This paper develops and estimates a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model with rule-of-thumb consumers and external habits. Our theoretical model has a closed-form solution which allows the analytical derivation of its dynamical and stability properties. These...

Relying on Michigan Survey' monthly micro data on inflation expectations we try to determine the main features -- in terms of sources and degree of heterogeneity - of inflation expectation formation over different phases of the business cycle and for different demographic subgroups. We identify...

This paper shows how any steady state distribution of ages and related hazard rates can be represented as a distribution across firms of completed contract lengths. The distribution is consistnet with a Generalised Taylor Economy or a Generalised Calvo model with duration dependent reset...

There is a large literature on monetary policy and asset prices. There are 2 aspects to this literature: do monetary policymakers respond to asset prices? should monetary policymakers respond to asset prices? This paper addresses the first of thes

Non-foreign direct investment capital inflows in China were particularly strong in 2003 and 2004. They were even stronger than current account surpluses or net foreign direct investment inflows. As a result, the pace of international reserves accumulation in China increased significantly. This...

We investigate whether increased independence affects central bank behavior when monetary policy is already in an inflation targeting regime. Taking advantage of the recent UK experience to identify such an exogenous change, we estimate Taylor rules via alternative methods, specifications and...