We examine the nonlinear one-step forward-looking model, in which the current state is a function of the (subjective) expected value of a nonlinear function of the state next period. Stationary Markov Sunspot Equilibria (SSEs) are known to exist near an indeterminate steady state, i.e. when the derivative of the function at the steady state is bigger than one in absolute value. We show that the...

Search Frictions on Product and Labor Markets: Money in the Matching Function This paper builds a macroeconomic model of equilibrium unemployment in which firms persistently face difficulties in selling their production and this affects their decisions to create jobs. Due to search-frictions on the product market, equilibrium unemployment is a U-shaped function of the ratio of total demand to t...

We investigate micro pricing behaviour in groceries (the UK’s most important consumer market) over eight years including the inflationary period of early 2008. We find behaviour sharply distinguished from most previous work, namely that overall basket prices rise but more individual prices fall than rise! This is consistent with retailers obscuring the fact of rising basket prices. We employ a ...

We examine the price dynamics in Indian cities using cointegration analysis. We identify and then calculate a common trend for prices in these 25 cities. We obtain the impulse response functions to calculate the rates of convergence to the prices, and find that the half-life of any shock is very small for Indian cities. Although a close to three-month half-life seems too fast, there are some in...

This paper extends the standard New Keynesian model by incorporating labor adjustment costs and overtime work. I show that labor frictions help reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level. The introduction of labor frictions affects the dynamic behavior of economic variables (particularl...

This paper proposes a new panel model of cross-sectional dependence. The model has a number of potential structural interpretations that relate to economic phenomena such as herding in financial markets. On an econometric level, it provides a flexible approach of modelling interactions across panel units and can generate endogenous cross-sectional dependence that can resemble the dependence tha...

We develop a theory of money and credit as competing payment instruments, then put it to work in applications. Buyers can use cash or credit, with the former (latter) subject to the inflation tax (transaction costs). Frictions making the choice of payment method interesting also imply equilibrium price dispersion, and together these deliver closed-form solutions for money demand. The model can ...

If preferences or budgets are heterogeneous across people (as they clearly are), then individual costof-living indices are also heterogeneous. Thus, any social cost-of-living index faces an aggregation problem. In this paper, we provide a solution to this problem which we call a ’common-scaling’social cost-of-living index (CS-SCOLI). In addition, we describe nonparametric methods for estimating...

This paper further tests Romer’s (1993) extension of Kydland and Prescott’s (1977) predictions for dynamic-inconsistency problems in open economies. In a panel data set of developed and developing countries from 1973 to 1998, I find that openness does not play a role in restricting inflation in the short-run. On the other hand, a fixed exchange-rate regime plays a significant role. The results ...

I develop and estimate a monetary business cycle model with nominal loans and collateral constraints tied to housing values. Demand shocks move housing and nominal prices in the same direction, and are amplified and propagated over time. The financial accelerator is not uniform: nominal debt dampens supply shocks, stabilizing the economy under interest rate control. Structural estimation suppor...