This paper characterizes Ramsey-optimal monetary policy in a medium-scale macroeconomic model that has been estimated to fit well postwar US business cycles. We find that mild deflation is Ramsey optimal in the long run. However, the optimal inflation rate appears to be highly sensitive to the...

In 2001 the Hungarian economy departed from the path of balanced growth. During the past six years the state budget deficit has grown to an unsustainable level, and also the deficit in the current accounts has become too high. Real wages have increased considerably faster than labour...

Central banks’ economic and political importance has grown in advanced economies since the start of the Great Financial Crisis in 2007. An unwillingness or inability of governments to use countercyclical fiscal policy has made monetary policy the only stabilization tool in town. However, much...

The paper examines the spending preferences of local governments on land revenues by developing an indirect approach in which public sector outcomes are regressed with land revenues, the most dominant source for off-budget incomes. By doing so, we are able to overcome the issue of unavailable...

Allowing habits to be formed at the level of individual goods – deep habits - can radically alter the fiscal policy transmission mechanism as the counter-cyclicality of mark-ups this implies can result in government spending crowding-in rather than crowding-out private consumption in the short...

We describe a simple mechanism that generates inflation persistence in a standard sticky-price model of optimal fiscal and monetary policy. Key to this mechanism is that policies are implemented under discretion. The government's discretionary incentive to erode the real value of nominal public...

Systematic deficit biases and the sovereign debt crisis have increased interest in fiscal rules and institutions, in particular the setting of intermediate fiscal policy targets. Theoretical arguments point to targeting of the structural budget balance, but it is difficult in practice because...

This paper estimates a New Keynesian open economy DSGE model for Turkey by using Bayesian estimation technique for the period of 2002:q1–2009:q3. It studies fiscal and monetary policy interactions and their role in stabilisation of the economy using a small-scale model following the...

We model a monetary union where fiscal discretion generates excessive debt accumulation in steady state and inefficiently delayed debt adjustment following shocks. By setting a debt target and raising the political cost of deviating from the optimal pace of debt reversal¸ institutional design...

The purpose of this paper is to convince the reader that the Continental dollar was a zero-interest bearer bond and not a fiat currency--thereby overturning 230 years of scholarly interpretation; to show that the public and leading Americans knew and acted on this fact, and to illustrate the...