This paper analyzes some new tests of the Cagan hyperinflation–money demand model which have several advantages relative to those in the literature. They do not confound specification error with rational bubbles, can be implemented with a linear procedure, and are frequently able to detect periodically collapsing bubbles which have challenged existing tests. After a Monte Carlo analysis, the te...

This paper uses the European Commission’s Consumer Survey to assess whether inflation expectations have converged and whether inflation uncertainty has diminished following the introduction of the Euro in Europe. Consumers’ responses to the survey suggest that inflation expectations depend more on past national inflation rates than on the ECB’s anchor for price stability. The convergence in inf...

This paper describes the chaotic monetary environment of medieval and early modern Europe. The poor quality of the coinage was a result both of problems with the supply of bullion and with deficiencies of monetary policy. The paper examines the supply and demand of bullion and the determinants of bullion flows. It then discusses the economics and politics of debasement. It concludes with a desc...

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under ...

This paper uses over two years of weekly scanner data from two small US cities to characterize time and state dependence of grocers’ pricing decisions. In these data, the probability of a nominal adjustment declines with the time since the last price change even after controlling for heterogeneity across store-product cells and replacing sale prices with regular prices. We also detect state dep...

——————————————————————————————————— We develop a model where agents can allocate their wealth between a liquid asset, which can be used to purchase consumption goods, and an illiquid asset, which represents a better store of value. Should a consumption opportunity arise, agents may visit a frictional “over-the-counter” secondary asset market where they can exchange illiquid for liquid assets. W...

A number of recent studies examining historical experiences with deflation have called into question the widely-held view that maintains deflation is economically harmful. These studies contend that a broad, historical perspective reveals a more nuanced view of deflation, one that requires taking seriously both malign and benign deflation. This paper builds on these findings by taking an in-dep...

In this paper the long-run trend in CPI inflation (core inflation) for the US over the 1960– 2000 period is estimated using a common trends model. In this framework, core inflation is interpreted and constructed as the long-run forecast of inflation conditional on the information contained in nominal money growth, output fluctuations and movements in the oil price. Unlike other commonly used me...

In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We develop a two-sector new-Keynesian model to evaluate different inflation targeting rules in economies with financial frictions. We conclude that, in the presence of financial frictions, a welfaremaximizing central bank should adopt flexible head...

A general equilibrium model of a small open economy is developed to analyze the optimal rate of inflation under discretion. Once agents’ welfare is the sole policy objective it is possible to show that openness and inflation no longer have a simple inverse relationship. A greater degree of openness may lead the policy maker to want to exploit the short-run Phillips curve more aggressively, even...