Publications

2009
Mankiw NG. Smart Taxes: An Open Invitation to Join the Pigou Club. Eastern Economic Journal. 2009;35 :12-23.Abstract

Many economists favor higher taxes on energy-related products such as gasoline, while the general public is more skeptical. This essay discusses various aspects of this policy debate. It focuses, in particular, on the use of these taxes to correct for various externalities—an idea advocated long ago by British economist Arthur Pigou.

PDF
2007
Mankiw NG, Ball L. Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design. Journal of Political Economy. 2007;115 (4) :523-547.Abstract

This paper examines the optimal allocation of risk in an overlapping-generations economy. It compares the allocation of risk the economy reaches naturally to the allocation that would be reached if generations behind a Rawlsian "veil of ignorance" could share risk with one another through complete Arrow-Debreu contingent-claims markets. The paper then examines how the government might implement optimal intergenerational risk sharing with a social security system. One conclusion is that the system must either hold equity claims to capital or negatively index benefits to equity returns.

PDF
Mankiw NG, Reis R. Sticky Information in General Equilibrium. Journal of the European Economic Association. 2007;5 (2-3) :603-613.Abstract

This paper develops and analyzes a general-equilibrium model with sticky information. The only rigidity in goods, labor, and financial markets is that agents are inattentive, sporadically updating their information sets, when setting prices, wages, and consumption. After presenting the ingredients of such a model, the paper develops an algorithm to solve this class of models and uses it to study the model’s dynamic properties. It then estimates the parameters of the model using U.S. data on five key macroeconomic time series. It finds that information stickiness is present in all markets, and is especially pronounced for consumers and workers. Variance decompositions show that monetary policy and aggregate demand shocks account for most of the variance of inflation, output, and hours.

PDF
2006
Mankiw NG. The Macroeconomist as Scientist and Engineer. Journal of Economic Perspectives. 2006;20 (4) :29-46. PDF
Mankiw NG, Swagel PL. The Politics and Economics of Offshore Outsourcing. Journal of Monetary Economics. 2006;53 (5) :1027-1056. PDF
Mankiw NG, Reis R. Pervasive Stickiness. American Economic Review. 2006;96 (2) :164-169. PDF Appendix
Mankiw NG, Weinzierl M. Dynamic Scoring: A Back-of-the-Envelope Guide. Journal of Public Economics. 2006;90 (8-9) :1415-1433.Abstract

This paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth. The model yields simple expressions for the steady-state feedback effect of a tax cut. The feedback is surprisingly large: for standard parameter values, half of a capital tax cut is self-…nancing. The paper considers various generalizations of the basic model, including elastic labor supply, general production technologies, departures from in…nite horizons, and non-neoclassical production settings. It also examines how the steady-state results are modi…ed when one considers the transition path to the steady state.

PDF Appendix
2005
Mankiw NG, Swagel PL. Antidumping: The Third Rail of Trade Policy. Foreign Affairs. 2005;July/August. PDF
Mankiw NG. A Letter to Ben Bernanke, in Alan Greenspan’s Legacy: An Early Look. American Economic Assocation ; 2005. PDF
Mankiw NG, Ball L, Reis R. Monetary Policy for Inattentive Economies. Journal of Monetary Economics. 2005;52 (May) :703-725.Abstract

This paper is a contribution to the analysis of optimal monetary policy. It begins with a critical assessment of the existing literature, arguing that most work is based on implausible models of inflation-output dynamics. It then suggests that this problem may be solved with some recent behavioral models, which assume that price setters are slow to incorporate macroeconomic information into the prices they set. A specific such model is developed and used to derive optimal policy. In response to shocks to productivity and aggregate demand, optimal policy is price level targeting. Base drift in the price level, which is implicit in the inflation targeting regimes currently used in many central banks, is not desirable in this model. When shocks to desired markups are added, optimal policy is flexible targeting of the price level. That is, the central bank should allow the price level to deviate from its target for a while in response to these supply shocks, but it should eventually return the price level to its target path. Optimal policy can also be described as an elastic price standard: the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate.

PDF
2003
Mankiw NG, Reis R, Wolfers J. Disagreement about Inflation Expectations. NBER Macroeconomics Annual. 2003 :209-248.Abstract

Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. Moreover, this disagreement shows substantial variation through time, moving with inflation, the absolute value of the change in inflation, and relative price variability. We argue that a satisfactory model of economic dynamics must speak to these important business cycle moments. Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple “sticky-information” model broadly matches many of these facts. Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news

PDF
2002
Mankiw NG, Reis R. What Measure of Inflation Should a Central Bank Target?. 2002.Abstract

This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector’s characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.

PDF
Mankiw NG, Ball L. The NAIRU in Theory and Practice. Journal of Economic Perspectives. 2002;16 (Fall) :115-136. PDF
Mankiw NG, Reis R. Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. Quarterly Journal of Economics. 2002;117 (Nov) :1295-1328.Abstract

This paper examines a model of dynamic price adjustment based on the assumption that information disseminates slowly throughout the population. Compared to the commonly used sticky-price model, this sticky-information model displays three related properties that are more consistent with accepted views about the effects of monetary policy. First, disinflations are always contractionary (although announced disinflations are less contractionary than surprise ones). Second, monetary policy shocks have their maximum impact on inflation with a substantial delay. Third, the change in inflation is positively correlated with the level of economic activity.

PDF
2001
Mankiw NG, Reis R. Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps, in Conference in Honor of Ned Phelps. ; 2001.Abstract

This paper explores a model of wage adjustment based on the assumption that information disseminates slowly throughout the population of wage setters. This informational frictional yields interesting and plausible dynamics for employment and inflation in response to exogenous movements in monetary policy and productivity. In this model, disinflations and productivity slowdowns have a parallel effect: They both cause the path of employment to fall below the level that would prevail under full information. The model implies that, in the face of productivity change, a policy of targeting either nominal income or the nominal wage leads to more stable employment than does a policy of targeting the price of goods and services. Finally, we examine U.S. time series and find that, as the model predicts, unemployment fluctuations are associated with both inflation and productivity surprises.

PDF
Mankiw NG. The Inexorable and Mysterious Tradeoff between Inflation and Unemployment. Economic Journal. 2001;111 (May) :C45-C61.Abstract

This paper discusses the short-run tradeoff between inflation and unemployment. Although this tradeoff remains a necessary building block of business cycle theory, economists have yet to provide a completely satisfactory explanation for it. According to the consensus view among central bankers and monetary economists, a contractionary monetary shock raises unemployment, at least temporarily, and leads to a delayed and gradual fall in inflation. Standard dynamic models of price adjustment, however, cannot explain this pattern of responses. Reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists.

PDF
Mankiw NG. U.S. Monetary Policy During the 1990s, in Conference on "Economic Policy During the 1990s". Kennedy School of Government ; 2001.Abstract

This paper discusses the conduct and performance of U.S. monetary policy during the 1990s, comparing it to policy during the previous several decades. It reaches four broad conclusions. First, the macroeconomic performance of the 1990s was exceptional, especially if judged by the volatility of growth, unemployment, and inflation. Second, much of the good performance was due to good luck arising from the supply-side of the economy: Food and energy prices were well behaved, and productivity growth experienced an unexpected acceleration. Third, monetary policymakers deserve some of the credit by making interest rates more responsive to inflation than was the case in previous periods. Fourth, although the 1990s can be viewed as an example of successful discretionary policy, Fed policymakers may have been engaged in "covert inflation targeting" at a rate of about 3 percent. The avoidance of an explicit policy rule, however, means that future policymakers inherit only a limited legacy.

PDF
2000
Mankiw NG. The Savers-Spenders Theory of Fiscal Policy. American Economic Review. 2000;90 (May) :120-125.Abstract

The macroeconomic analysis of fiscal policy is usually based on one of two canonical models--the Barro-Ramsey model of infinitely-lived families or the Diamond-Samuelson model of overlapping generations. This paper argues that neither model is satisfactory and suggests an alternative. In the proposed model, some consumers plan ahead for themselves and their descendants, while others live paycheck to paycheck. This model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation, and it yields some new and surprising conclusions about fiscal policy.

PDF A Correction
1999
Mankiw NG, Elmendorf D. Government Debt. In: Handbook of Macroeconomics. North Holland ; 1999.Abstract

This paper surveys the literature on the macroeconomic effects of government debt. It begins by discussing the data on debt and deficits, including the historical time series, measurement issues, and projections of future fiscal policy. The paper then presents the conventional theory of government debt, which emphasizes aggregate demand in the short run and crowding out in the long run. It next examines the theoretical and empirical debate over the theory of debt neutrality called Ricardian equivalence. Finally, the paper considers the various normative perspectives about how the government should use its ability to borrow.

PDF
1998
Mankiw NG. Teaching the Principles of Economics. Eastern Economic Journal. 1998;24 (4) :519-524. PDF

Pages