In this work, we find that the zero capital income tax result might not hold, even at the steady state, when the government discount rate differs from the individual one. As intuitive Pigouvian considerations would suggest, capital income should be taxed (subsidized) when the government is less (more) impatient than individuals are. However, a counterintuitive asymmetry emerges as for the steady state since, in the long run, capital income cannot be taxed because of the explosive distortionary effect of positive taxes. The asymmetry is ruled out with a logarithmic utility function because, in this case, the anticipated policy path does not affect current individual choices and thus the cumulative distortionary effect of taxes disappears.

This paper analyzes the robustness of the estimate of a positive productivity shock on hours to the presence of a possible unit root in hours. Estimations in levels or in first differences provide opposite conclusions. We rely on an agnostic procedure in which the researcher does not have to choose between a specification in levels or in first differences. We find that a positive productivity shock has a negative impact effect on hours, but the effect is much shorter lived, and disappears after two quarters. The effect becomes positive at business-cycle frequencies, although it is not significant.

Recent emphasis has been placed on exploring behavioral aspects of individual agents in explaining macroeconomic phenomena. Of particular interest is augmenting New Keynesian models to produce costly disinflation, as empirics and consensus suggest. We presume a fraction of agents using rule-of-thumb behavior in price setting in an otherwise standard New Keynesian model. Our findings suggest that relatively small amounts of rule-of-thumb behavior are required to offset the net effects of Ball's disinflationary boom. Moderate levels of rule-of-thumb behavior can produce delayed recessions consistent with some VAR evidence. However, high proportions of rule-of-thumb behavior are needed to produce immediate reductions in output following implementation.

I model an international payments system with a financial center and periphery to reproduce various aspects of the International Gold Standard. This period was characterized by frequent crises associated with scarce stocks of reserves, high short-term interest rates with subsequent gold inflows, and transmission of output contractions across countries. I find that a common international currency and no legal restrictions on exchange help the periphery share reserves with the financial center, improving the world's welfare and mitigating output losses due to reserve crises. Also, the center has incentives for restrictive rediscounting while the periphery has motives for developing central banking.

This paper focuses on the demand for money in the United States in the context of two globally flexible functional forms—the Fourier and the asymptotically ideal model (AIM)—estimated subject to full regularity, using methods suggested over 20 years ago. We provide a comparison in terms of violations of the regularity conditions for consumer maximization and in terms of output in the form of a full set of elasticities. We also provide a policy perspective, using (for the first time) parameter estimates that are consistent with global regularity, in that a very strong case can be made for abandoning the simple-sum approach to monetary aggregation, on the basis of the low elasticities of substitution among the components of the popular M2 aggregate of money.

The rational expectations hypothesis swept through macroeconomics during the 1970s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modelling. The rational expectations hypothesis was initially formulated by John F. Muth Jr. in the early 1960s. Together with Robert Lucas Jr., Thomas (Tom) Sargent pioneered the rational expectations revolution in macroeconomics in the 1970s.