Rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity, as in the analyses of Sargent and Wallace. However, if agents are differentially informed and have access to a common price, then prospective monetary policy actions--future feedback to imperfectly known current circumstances--can alter real activity by changing the information content of prices.

Rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity, as in the analyses of Sargent and Wallace. However, if agents are differentially informed and have access to a common price, then prospective monetary policy actions--future feedback to imperfectly known current circumstances--can alter real activity by changing the information content of prices.

Band-pass filters are useful in a wide range of economic contexts. This paper develops a set of approximate band-pass filters and illustrates their application to measuring the business-cycle component of macroeconomic activity. Detailed comparisons are made with several alternative filters commonly used for extracting business-cycle components.

This paper studies four classic fiscal-policy experiments within a quantitatively restricted neoclassical model. Our main findings are as follows: (i) permanent changes in government purchases can lead to short-run and long-run output multipliers that exceed 1; (ii) permanent changes in government purchases induce larger effects than temporary changes; (iii) the financing decision is quantitatively more important than the resource cost of changes in government purchases; and (iv) public investment has dramatic effects on private output and investment. These findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy.

This paper studies four classic fiscal-policy experiments within a quantitatively restricted neoclassical model. The authors' main findings are as follows: (1) permanent changes in government purchases can lead to short-run and long-run output multipliers that exceed one; (2) permanent changes in government purchases induce larger effects than temporary changes; (3) the financing decision is quantitatively more important than the resource cost of changes in government purchases; and (4) public investment has dramatic effects on private output and investment. These findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy.

Why do the countries of the world display considerable disparity in long-term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies that affect the incentives that individuals have to accumulate capital in both its physical and human forms. Our analysis shows that these incentive effects can induce large differences in long-run growth rates. Since many of the key tax rates are difficult to measure, our procedure is an indirect one. We work within a calibrated, two-sector endogenous growth model, which has its origins in the microeconomic literature on human capital formation. We show that national taxation can substantially affect long-run growth rates. In particular, for small open economies with substantial capital mobility, national taxation can readily lead to "development traps" (in which countries stagnate or regress) or to "growth miracles" (in which countries shift from little growth to rapid expansion). This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 percent increase in the rate of income tax can be 40 times larger than in the basic neoclassical model.

Neoclassical transitional dynamics are a central element of standard macroeconomic theory. Quantitative experiments with the fixed-savings-rate models of the 1960's showed lengthy transitions, thus potentially rationalizing sustained differences in growth rates across countries. We investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households. Lengthy transitions occur only with very low intertemporal substitution. Generally, when one tries to explain sustained economic growth with transitional dynamics, there are extremely counterfactual implications. These result from the fact that implied marginal products are extraordinarily high in the early stages of development.