The paper discusses recent developments of German fiscal federalism—especially the Länderfinanzausgleich, i.e. Germany’s unique system of horizontal equalization. A ruling by the Constitutional Court has cracked the status quo, and the parties involved (federation and states) have begun a process of bargaining on a new equalization system. This process is assessed against the background of rece...

The present paper reassesses the role of monetary conservatism in a setting with nominal government debt and endogenous fiscal policy. We assume that macroeconomic policies are chosen by monetary and fiscal policy makers who interact repeatedly but cannot commit to future actions. The real level of public liabilities is an endogenous state variable, and policies are chosen in a non-cooperative ...

Output-growth and inflation differentials have been large and rather persistent since the beginning of the European Economic and Monetary Union. In the empirical literature, several fundamental causes of heterogeneities as regional productivity shocks and home-bias effects, and frictions as staggered-pricing and labor immobility are identified as causes for these differentials. In our model, we...

Ramsey models of fiscal and monetary policy featuring time-separable preferences and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation. The result depends on increases in either the ability to smoot...

the quality of firms’ reaction against demand uncertainty affects the production inputs employment. in this research i have studied and compared the behavior of active firms in manufacturing sector with respect to the risk attitude and tested it’s effect on production inputs combination(with the special emphasize on labor employment). the research findings reveal that active firms in manufactur...

The paper examines government spending that is financed by taxes that distort output and by the inflation tax. High inflation and low output are the consequence of fiscal ambitions that exceed the current capacity of the economy to support. Supply-side growth alleviates this tension, allowing lower inflation, lower tax distortions, and higher output. In the presence of commitment problems, reso...

This paper presents a number of responses to Gordon de Brouwer’s criticisms of my paper on monetary policy in Indonesia. Among other things, it argues that de Brouwer has failed to disentangle the impact of two exogenous disturbances on prices—and relative prices—during the crisis and post-crisis period. These disturbances were capital flight, which resulted in real depreciation of the rupiah, ...

We describe a simple mechanism that generates inflation persistence in a standard sticky-price model of optimal fiscal and monetary policy. Key to this mechanism is that policies are implemented under discretion. The government’s discretionary incentive to erode the real value of nominal public debt by means of surprise inflation renders inflation expectations and, in further consequence, equil...

This study investigates the profit efficiency (PROFEFF) of small banks (those under $500 million in total assets) for 1990–96. Assuming that small banks and large banks use the same production technology, we find, consistent with Berger and Mester [J. Bank. Finance 21 (1997) 875], that small banks are more profit efficient than large banks. Small banks in non-metropolitan statistical areas (non...

We study optimal government policy in an economy where (i) search frictions create a coordination problem and generate multiple Pareto-ranked equilibria and (ii) the government finances the provision of a public good by taxing trade. The government must choose the tax rate before it knows which equilibrium will obtain, and therefore an important part of the problem is determining how the policy...