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Working Paper
Linear rational expectations models for dynamically interrelated variables
Hansen, Lars Peter; Sargent, Thomas J. (1980)
Working Papers , Paper 135

Working Paper
The ends of four big inflations
Sargent, Thomas J. (1981)
Working Papers , Paper 158

Working Paper
The limits of counter-cyclical monetary policy: an analysis based on optimal control theory and vector autoregressions
Litterman, Robert B. (1986)
Optimal control theory can be combined with the probability structure of a vector autoregression to investigate the tradeoffs available to policymakers. Such an approach obtains results based on a minimal set of assumptions about the economy and the structure of policy actions. This paper takes this approach to analyze the potential effectiveness of countercyclical monetary policy.
Working Papers , Paper 297

Working Paper
Smooth nonexpected utility without state independence
Ai, Hengjie (2005)
We propose a notion of smoothness of nonexpected utility functions, which extends the variational analysis of nonexpected utility functions to more general settings. In particular, our theory applies to state dependent utilities, as well as the multiple prior expected utility model, both of which are not possible in previous literatures. Other nonexpected utility models are shown to satisfy smoothness under more general conditions than the Frchet and Gateaux differentiability used in the literature. We give more general characterizations of monotonicity and risk aversion without assuming ...
Working Papers , Paper 637

Working Paper
Time-varying risk, interest rates and exchange rates in general equilibrium
Kehoe, Patrick J.; Alvarez, Fernando; Atkeson, Andrew (2005)
Time-varying risk is the primary force driving nominal interest rate differentials on currency-denominated bonds. This finding is an immediate implication of the fact that exchange rates are roughly random walks. We show that a general equilibrium monetary model with an endogenous source of risk variation?a variable degree of asset market segmentation?can produce key features of actual interest rates and exchange rates. The endogenous segmentation arises from a fixed cost for agents to exchange money for assets. As inflation varies, the benefit of asset market participation varies, and that ...
Working Papers , Paper 627

Working Paper
Optimal allocations with incomplete record-keeping and no commitment
Kocherlakota, Narayana R.; Wallace, Neil (1997)
We study a random-matching, absence-of-double-coincidence environment in which people cannot precommit and in which there are two imperfect ways of keeping track of what other people have done in the past: money and a public record of all past actions that is updated with an average lag. We study how the magnitude of that lag affects the allocations that are optimal from among allocations that are stationary and feasible and that satisfy incentive constraints which arise from the absence of commitment and the imperfect ways of keeping track of what others have done in the past.
Working Papers , Paper 578

Working Paper
The time consistency of monetary and fiscal policies
Neumeyer, Pablo Andrés; Kehoe, Patrick J.; Alvarez, Fernando (2002)
Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)
Working Papers , Paper 616

Working Paper
Fiscal Stimulus under Sovereign Risk
Presno, Ignacio; Ottonello, Pablo; Bianchi, Javier (2019-09-12)
The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to ...
Working Papers , Paper 762

Working Paper
Firm and Worker Dynamics in an Aging Labor Market
Engbom, Niklas (2019-04-10)
I develop an idea flows theory of firm and worker dynamics in order to assess the consequences of population aging. Older people are less likely to attempt entrepreneurship and switch employers because they have found better jobs. Consequently, aging reduces entry and worker mobility through a composition effect. In equilibrium, the lower entry rate implies fewer new, better job opportunities for workers, while the better matched labor market dissuades job creation and entry. Aging accounts for a large share of substantial declines in firm and worker dynamics since the 1980s, primarily due to ...
Working Papers , Paper 756

Working Paper
Self-Fulfilling Debt Crises with Long Stagnations
Teles, Pedro; Navarro, Gaston; Nicolini, Juan Pablo; Ayres, Joao Luiz (2019-04-18)
We explore quantitatively the possibility of multiple equilibria in a model of sovereign debt crises. The source of multiplicity is the one identified by Calvo (1988). This type of multiplicity has been at the heart of the policy debate through the recent European sovereign debt crisis. Key for multiplicity in the model is a stochastic process for output featuring long periods of either high or low growth. We calibrate the output process in the model using data for the southern European countries that were exposed to the debt crisis. We find that expectations-driven sovereign debt crises are ...
Working Papers , Paper 757

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