In standard New Keynesian models, future interest rate cuts have larger effects than current cuts—this is called the forward guidance puzzle. We argue that the forward guidance puzzle is not a puzzle. We show the puzzle arises from an implausibly large monetary regime change, exceeding anything in U.S. history since the Great Depression. By calibrating our model to four regime changes during the U.S. Great Depression, disciplined by changes in long-term bond yields, we find the model’s predictions are broadly consistent with historical data.

We model a production network economy with sectoral and occupational unemployment by incorporating matching between job seekers across various occupations and employers in different production sectors.

We examine whether, under current benefit and funding policies, state and local pension plans will ever become insolvent and if so, when. We then examine the fiscal cost of stabilizing pension debt as a share of the economy and examine the cost associated with delaying such stabilization into the future.