[Staggered wage contracts as short as 1 year are shown to be capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States. A contract multiplier causes business cycles to persist beyond the length of the longest contract, and a diffusion of shocks across contracts causes the persistence to increase for several periods before diminishing. A persistence of inflation is also generated by the contracts. This persistence is represented as a reduced-form distributed-lag wage equation in which the lag coefficients have a pure-expectations component and an inertia component due to the overhang of outstanding contracts. Using rational expectations to separate these components suggests that aggregate demand may have a greater impact on inflation than the simple reduced-form estimates would indicate.]

An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago.