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.
This book reviews basic facts about business cycles. It then develops a matching model to explain these business-cycle facts. Finally, it explains how monetary policy and government spending should be designed to stabilize business cycles.
This paper develops a model of pricing in which buyers care about the fairness of markups but misinfer them from prices. The model yields price rigidity, generates realistic Phillips curves, and explains why people dislike inflation so much.