In the United States, eradication of persistent federal deficits has won broad bipartisan support. At the same time, political pressures have mounted to strengthen the Federal Reserve's explicit concern with price stability. Proposals under consideration would require a much narrower focus on the part of Fed policymakers, and could be interpreted as targeting the price level rather than a negli...

This paper investigates the efficiency of monetary and fiscal policy in a twocountry general equilibrium model with monopolistic competition and wage stickiness. When monopoly distortions are completely eliminated, we find that under some conditions, stochastic government spending can affect the efficiency of global monetary policy rules that replicate the real allocations under flexible wages....

We analyse the impact of interactions between monetary and fiscal policy on macroeconomic stability. We find that in the presence of sovereign default beliefs a monetary policy, which aims to stabilize inflation through an active interest rate policy, will destabilize the economy if the feedback from debt surprises back to the primary surplus is too weak. This result, which relies on endogenous...

Central to ongoing debates over the desirability of monetary unions is a supposed trade-off, outlined by Mundell [1961]: a monetary union reduces transactions costs but renders stabilization policy less effective. If shocks across countries are sufficiently correlated, then, according to this argument, delegating monetary policy to a single central bank is not very costly and a monetary union i...

This paper assesses the prospects for the new Polish monetary policy strategy of inflation targeting. Regarding the general requirements for implementing an inflation targeting strategy it appears that Poland has made sufficient progress in reducing fiscal dominance and hardening budget constraints. The paper also finds that the exchange rate has played a dominant role as a policy instrument, w...

We characterize monetary and fiscal policy rules to implement optimal responses to a substantial decline in the natural rate of interest, and compare them with policy decisions made by the Japanese central bank and government in 1999—2004. First, we find that the Bank of Japan’s policy commitment to continuing monetary easing until some prespecified conditions are satisfied lacks history depend...

The fiscal theory of the price level (FTPL) describes fiscal and monetary policy rules such that the price level is determined by government debt and fiscal policy alone, with monetary policy playing at best an indirect role. This theory clashes with the monetarist view that states that money supply is the primary determinant of the price level and inflation. Furthermore, many authors have argu...

This paper examines monetary and fiscal policy through the estimation of a New-Keynesian dynamic general equilibrium model for Iran’s economy. In this New-Keynesian dynamic general equilibrium model, the consumers encounter the liquidity constraint and the firms face sticky prices, while they are changing them. In the model presented, a role is considered for both government spending and taxati...

This session of the conference is titled: “Fiscal Policy in a Monetary Union”. What is a central banker’s role in such a discussion? Well, Mervyn King once said: “Central banks are often accused of being obsessed with inflation. This is untrue. If they are obsessed with anything, it is with fiscal policy.” As so often, Mervyn King was right, we central bankers are indeed obsessed with fiscal po...