Moen Meets Rotemberg: An Earthly Model of the Divine Coincidence

This paper develops a simple business-cycle model with divine coincidence: inflation is on target when unemployment is efficient. The divine coincidence arises from directed search under a quadratic price-adjustment cost.

January 2024 · Pascal Michaillat, Emmanuel Saez

Resolving New Keynesian Anomalies with Wealth in the Utility Function

This paper resolves the anomalies of the New Keynesian model at the zero lower bound—explosive recession, forward-guidance puzzle, multiplier puzzle—by introducing wealth into the utility function.

May 2021 · Pascal Michaillat, Emmanuel Saez