We examine local strong rationality (LSR) in multivariate models with both forward-looking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive...

This paper addresses the issue on whether tax reforms consisten with lower public debt-to-GDP in the long-run can lead to a more efficient and equitable economy. To this end we solve a heterogeneous agent model comprised of a government, a representative capitalist and representative skilled and...

We study the consequences of the entry of a structurally heterogeneous country on the well-being of the current members of a monetary union. Welfare would be increased if the new country is more open, if it has a smaller sensibility of its demand to the interest rate, and also generally if its...

The paper studies the appropriate weight that the central bank of a heterogeneous monetary union should give to each specific country. To stabilize symmetric shocks, the central bank should give a bigger weight to the countries where the rigidity in the labor market and the sensibility of the...