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2

6.14 Coordination-Failure Models and Real Non-Walrasian

Theories 294

6.15 Limitations 300 Problems 302

Chapter? CONSUMPTION 309

7.1 Consumption tmder Certainty: The Life-Cycle/

Permanent-Income Hypothesis 310

7.2 Consumption under Uncertainty: The Random-Walk

Hypothesis 316

7.3 Empirical Application: Two Tests of the Random-Walk

Hypothesis 319

7.4 The Interest Rate and Saving 323

7.5 Consumption and Risky Assets 328

7.6 Alternative Views of Consumption 332 Problems 341

Chapters INVESTMENT 345

8.1 Investment and the Cost of Capital 345

8.2 A Model of Investment with Adjustment Costs 348

8.3 Tobins q 353

8.4 Analyzing the Model 354

8.5 Implications 358

8.6 The Effects of Uncertainty: An Introduction 364

8.7 Financial-Market Imperfections 369

8.8 Empirical Applications 380 Problems 384

Chapter 9 INFLATION AND MONETARY POLICY 388

9.1 Introduction 388

9.2 Inflation, Money Growth, and Interest Rates 389

9.3 Monetary Policy and the Term Structure of Interest

Rates 395

9.4 The Dynamic Inconsistency of Low-Inflation Monetary

PoUcy 398

9.5 Addressing the Dynamic-Inconsistency Problem 403

9.6 Some Macroeconomic Policy Issues 412

9.7 Seignorage and Inflation 420

9.8 The Costs of Inflation 429 Problems 433



References 494

Name Index 523

Subject Index 528

Chapter 10 UNEMPLOYMENT 439

10.1 Introduction: Theories of Unemployment 439

10.2 A Generic Efflciency-Wage Model 441

10.3 A More General Version 446

10.4 The Shapiro-Stiglitz Model 450

10.5 Implicit Contracts 461

10.6 Insider-Outsider Models 465

10.7 Hysteresis 469

10.8 Search and Matching Models 473

10.9 Empirical Apphcations 481 Problems 486



EMPIRICAL APPLICATIONS

Section 1.7 Growtii Accounting 26

Convergence . 27

Saving and Investment 31

Investment, Population Growth, and Output 32

Section 2.7 Wars and Real Interest Rates 61

Section 2.13 Are Modern Economies Dynamically Efficient? 84 Section 3.7 Population Growth and Technological Change Since

1 Million B.C. 122 Section 3.11 Physical and Human Capital Accumulation and

Cross-Country Differences in bicomes 137

Section 4.8 The Persistence of Output Fluctuations 175

Section 4.9 Calibrating a Real-Business-Cycle Model 180

Productivity Movements in the Great Depression 182

Section 5.6 Money and Output 232

Section 6.4 International Evidence on Output-Inflation Tradeoffs 253 Section 6.13 The Average Inflation Rate and the Output-Inflation

Tradeoff 289

Supply Shocks 291

Microeconomic Evidence on Price Adjustment 293

Section 6.14 Experimental Evidence on Coordination-Failure Games 297

Section 7.1 Understanding Estimated Consumption Functions 312 Section 7.3 Campbell and Mankiws Test of the Random-Walk

Hypothesis Using Aggregate Data 319 Sheas Test of the Random-Walk Hypothesis Using

Household Data 322

Section 7.5 The Equity-Premium Puzzle 330

Section 7.6 Liquidity Constraints and Aggregate Saving 338

Buffer-Stock Saving 339 Section 8.8 The Investment Tax Credit and the Price of Capital Goods 380

Cash Flow and Investment 381 Section 9.3 The Response of the Term Structure to Changes in the

Federal Reserves Federal-Funds-Rate Target 396

Section 9.5 Central-Bank Independence and Inflation 409

Section 10.9 Contracting Effects on Employment 481

Interindustry Wage Differences 484

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