A fiscal shock due to a shift in taxes or in government spending will, at some point in time, constrain the future path of taxes and spending, since the government’s intertemporal budget constraint will eventually have to be met. This simple fact is surprisingly overlooked in analyses of the...

The long-run relationship between money and prices in the euro area embedded in traditional money demand models with income and interest rates broke down after 2001. We develop an money demand model where investors hold a diversified portfolio with money, domestic and foreign stocks and...