This paper uses a model of the valuation of bonds bearing call options, together with observed market yields on callable bonds, to infer information about the uncertainty associated with interest rate expectations. A dynamic programming solution of the model simultaneously determines both the...

The standard workhorse models of monetary policy now commonly in use, both for teaching macro- economics to students and for supporting policymaking within many central banks, are incapable of incorporating the most widely accepted accounts of how the 2007–9 financial crisis occurred and...

In contrast to the standard interpretation of the origins of economics out of the secular European Enlightenment of the 18th century, the transition in thinking that we rightly identify with Adam Smith and his contemporaries and followers, which gave us economics as we now know it, was...

Monetary policymakers normally seek to achieve multiple objectives: for prices as well as real economic activity, sometimes for the composition of real activity as well as the aggregate, and often for aspects of the economy's international balance. The fact that monetary policy has only one...

This paper outlines an optimization framework which extends the familiar Tinbergen-Theil model in two ways. First, a "piecewise quadratic" replaces the standard quadratic objective function. Second, the time horizon of the optimization becomes, within the context of economic stabilization...

Because transactions costs are smaller for allocating new cash flows than for reallocating existing asset holdings, financial flow variables are important determinants of investors' short-run asset demands. The demand-for-bonds equations implied by the resulting "optimal marginal adjustment"...

The lessons learned from the recent financial crisis should significantly reshape the economics profession's thinking, including, importantly, what we teach our students. Five such lessons are that we live in a monetary economy and therefore aggregate demand and policies that affect aggregate...