We study macroeconomic stabilization when monetary and fiscal policies interact via their effects on output and inflation and the monetary authority is more conservative than the fiscal. We find that monetary-fiscal interactions result in poor macroeconomic stabilization. With both policies...

This paper analyzes the optimal use of fiscal policy and sovereign debt repayment as signals in an asymmetric information environment. It shows that the presence of government private information could turn an optimal full-information countercyclical fiscal policy into a pro-cyclical one that...

In spite of the concerns about “twin deficits†(fiscal and current account deficits) for the U.S., empirical evidence suggests that “twin divergence†is a more regular feature of the data: when the fiscal accounts worsen, the current account improves and vice versa. We thus...