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2001 Working Papers

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Growth Effects of Progressive Taxes
By Pierre-Daniel G. Sarte & Wenli Li
Working Paper 01-9
Released: November 2001

Criticisms of endogenous growth models with flat rate taxes have highlighted two features that are not substantiated by the data. These models generally imply: (1) that economic growth must fall with the share of government expenditures in output across...

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The Pitfalls of Monetary Discretion
By Robert G. King, Aubhik Khan & Alexander L. Wolman
Working Paper 01-8
Released: October 2001

In a canonical staggered pricing model, monetary discretion leads to multiple private sector equilibria. The basis for multiplicity is a form of policy complementarity. Specifically, prices set in the current period embed expectations about future...

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The Role of Real Wages, Productivity, and Fiscal Policy in Germany’s Great Depression 1928-37
By Andreas Hornstein & Jonas D.M. Fisher
Working Paper 01-7
Released: August 2001

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the ...

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Sticky Prices and Inventories: Production Smoothing Reconsidered
By Pierre-Daniel G. Sarte & Andreas Hornstein
Working Paper 01-6
Released: March 2001

We study the implications of nominal price rigidities in a model where firms use inventories to smooth production because of increasing marginal cost. Conventional criticisms of production smoothing models have focused on their inability to replicate the...

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The Taylor Principle, Interest Rate Smoothing and Fed Policy in the 1970s and 1980s
By Yash P. Mehra
Working Paper 01-5
Released: August 2001

Using a real time estimate of the output gap, this article estimates Taylor-type policy rules that predict the actual behavior of the funds rate during two sample periods, 1968Q1 to 1979Q2 and 1979Q3 to 1987Q4. The inflation rate response coefficient is...



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Macroeconomic Fluctuations and Bargaining
By Huberto M. Ennis
Working Paper 01-4
Released: July 2001

I study the limit rule for bilateral bargaining when agents recognize that the aggregate economy (influencing the match surplus) follows a dynamic process that randomly switches back and forth between a finite number of possible states. The rule derived...

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Optimal Policy with Probabilistic Equilibrium Selection
By Todd Keister & Huberto M. Ennis
Working Paper 01-3
Released: June 2001

This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign...

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The Case for Price Stability
By Robert G. King & Marvin Goodfriend
Working Paper 01-2
Released: May 2001

Reasoning within the New Neoclassical Synthesis (NNS) we previously recommended that price stability should be the primary objective of monetary policy. We called this a neutral policy because it keeps output at its potential, defined as the outcome ...

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Financial Stability, Deflation, and Monetary Policy
By Marvin Goodfriend
Working Paper 01-1
Released: January 2001

     The paper explores the relationship between financial stability, deflation, and monetary policy. A discussion of narrow liquidity, broad liquidity, market liquidity, and financial distress provides the foundation for the...


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