This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper stu...

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A Farmer-type Keynesian model is constructed to explore and exposit Keynesian ideas. The modeling innovation is to integrate Farmer’s approach with monetary exchange and to derive optimal monetary and fiscal policies. Two approaches are taken to optimal policy an approach in the spirit of New Keynesian sticky-wage-and-price models, and an a "sophisticated policy" approach. Optimal policies typi...

Monetary and fiscal policy interactions are studied in a stochastic maximizing model. Policy is ‘active’ or ‘passive’ depending on its responsiveness to government debt shocks. Schemes for financing deficits and, therefore, the existence and uniqueness of equilibria depend on two policy parameters. The model is used to: (i) characterize the equilibria implied by various financing schemes, (ii) ...

Policies designed to pursue an equity-led macroeconomic growth strategy must take into account feedback effects, with distribution itself influencing macroeconomic outcomes. Under the right conditions, a more equitable distribution of income and opportunities in the form of human development can be a stimulus to growth, funding further investments in human development. Developing the policies t...

When nominal interest rates are at the zero bound, so that monetary policy cannot be used to provide appropriate stymulus, tax policy can accomplish that at zero cost. There is no need to use ine¢ cient policies, such as wasteful public spending. This means that the zero bound on nominal interest rates is not a relevant constraint on both …scal and monetary policy. Key words : Zero Bound; Fisca...

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 examines the design of macroeconomic policies after the enlargement of the EU by Central and Eastern European countries (CEECs). We consider scenarios with and without CEECs being members of the European Economic and Monetary Union (EMU). For the European Central Bank, we analyze consequences of monetary versus inflation targeting. For European fiscal policies, we assume that the gov...