Michelson-Morley, Fisher, and Occam: The Radical Implications of Stable Inflation at the Zero Bound.
2018. NBER Macroeconomics Annual 32 (1) 113-226, Martin Eichenbaum and Jonathan A. Parker Eds. The fact that inflation is quiet and stable at zero rates cleanly invalidates the standard old-Keynesian model, which predicts a deflation spiral, and almost as cleanly invalidates new-Keynesian sunspots. New Keynesian price stickiness plus fiscal theory selection works well, and solves the puzzles of new-Keynesian models with selection by post-bound active policy. Stable inflation suggests a higher rate will raise inflation. That conclusion is hard to escape, even temporarily. The fiscal theory with long term debt does it. Even that does not rescue traditional views of monetary policy. A shortish nontechnical summary. Data and Programs. Last manuscript with online algebra appendix . Published version (pdf) at the University of Chicago Press website. Full text html of the published version. Video of the paper presentation at NBER.