Are restrictions on fiscal policy necessary for monetary policy to be able to deliver price stability? When households are Ricardian, the net present value of future fiscal surpluses needs to equate the real value of government debt absent inflation. We show that when households are not...

The dynamic IS curve of New-Keynesian models captures the dependence of aggregate demand on future interest rates, but only in the case where there is no investment and the interest rate channel only originates in the savings decisions of households. The paper derives the dynamic IS curve...

How effective make-up strategies are depends heavily on how forward-looking agents are. Workhorse monetary models, which are much forward-looking, find them so effective that they run into the so-called 'forward-guidance puzzle'. Models that discount the future further find them much less...

How effective make-up strategies are depends heavily on how forward-looking agents are. Workhorse monetary models, which are much forward-looking, find them so effective that they run into the forward-guidance puzzle. Models that discount the future further find them much less effective, but...

This report discusses the role of the European Union’s full employment objective in the conduct of the ECB’s monetary policy. It first reviews a range of indicators of full employment, highlights the heterogeneity of labour market outcomes within different groups in the population and across...

The ECB’s price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has...