We investigate the importance of the behaviour of the monetary authority for the dynamics of a currency union where cross-country asymmetries are not necessarily reflected in differences in economic size. We construct a stylised two-country general equilibrium model with sticky-prices to serve...

This paper develops a model of a small open economy integrated in a monetary union. The model incorporates the standard nominal and real frictions in the literature. The parameters of the model are calibrated to the Portuguese data and the effects of the standard monetary policy shock are studied.

The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal...

<br>The decline of capital taxation is associated with efficiency gains.<br>We show that, when agents are heterogeneous, equity concerns can change the policy recommendation driven by efficiency. Given the empirical evidence on the roots of heterogeneity inside each country, either in developing or...

To investigate time heterogeneity in the e¤ects of fiscal policy in the U.S., we use a non-recursive, Blanchard and Perotti-like structural VAR with time-varying parameters, estimated through Bayesian simulation over the 1965:2-2009:2 period. Our evidence suggests that fiscal policy has lost...

It is believed that a shock, common to a set of countries with identical fundamentals, has identical outcomes across countries. We show that in general, when specialization in production is such that a common shock creates a missing role for labor mobility across countries, the terms of trade of...

This article is focused on fiscal stimulus and exit strategies in a small euro area economy. The analysis is based on a New-Keynesian general equilibrium model with non-Ricardian features introduced in Almeida, Castro and Félix (2010). We define a benchmark fiscal stimulus and, conditional on...

In this paper, we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy. We consider an environment with monopolistic competitive firms, a shopping time technology, prices set one period in advance, and government expenditures that must be...

We study environments with sticky prices, wages or portfolios where it is feasible and optimal to use monetary policy to replicate the allocation under full flexibility. In these environments the optimal policy does not depend on the scope of the frictions. In this sense, the strength of the...

What instruments of monetary policy must be used in order to implement a unique equilibrium? This paper revisits the issues addressed by Sargent and Wallace (1975) on the multiplicity of equilibria when policy isconducted with interest rate rules. We show that the appropriate interestrate...