So far, the 'New Open Economy Macroeconomics' literature has primarily focused on monetary policy and monetary policy rules, rather than paying attention also to fiscal policy. This is an omission because, especially with the advent of EMU, the burden on fiscal policy as an instrument for...

We study optimal monetary and fiscal stabilization policy in a two-country monetary union in the presence of (inefficient) mark-up shocks, price rigidities and monopolistic competition. The underlying dynamic system contains two Phillips curves featuring public spending and mark-up shocks. We...