How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idyosincratic shocks which may force them to default on their debt. Firms' assets and liabilities are denominated in nominal terms and predetermined when...

This paper discusses three aspects of stabilization and international integration: the real wage; inflation; and the real effective exchange rate. Using empirical evidence on inflation and the real effective exchange rate, we evaluate the gradualist option represented by the Hungarian reforms....

The paper analyses, along the transition path and in steady state, the optimal stabilization policy in an economy in which growth is driven by learning by doing. If future benefits of learning by doing are not fully internalized by workers the optimal fiscal policy is to tax labour during...

Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a...

Trade links imply that business cycle fluctuations are transmitted to trade partners. To the extent that fiscal policy can mitigate business cycle fluctuations this implies that there are international interdependencies in stabilization policies. We analyse the role of fiscal policy in...

We use an intertemporal model incorporating short-run labour and goods markets disequilibrium to analyse the consequences of oil price shocks for unemployment, investment and the current account. A dominant transfer element leads to Keynesian unemployment now and deterioration tomorrow in the...

Bulgaria, like other socialist economies in transition, is attempting to implement an ambitious programme which combines a price reform to reduce price distortions and to liberalize pricing mechanisms, with macroeconomic stabilization to reduce the budget deficit and lower the underlying rate of...

This paper considers optimal stabilization policy and nominal income targets for an open economy where the authorities are concerned both with unemployment and monetary instability. To fully achieve these two objectives the authorities must use both monetary and "supply-side" fiscal policy. It...

We derive a set of stylized facts on the effects of non-systematic fiscal policy in the four largest countries of the Euro area, and discuss their implications for the fiscal policy coordination debate, for the effectiveness of fiscal shocks in stabilizing the economies, and for the interaction...

This paper shows that fiscal policy, when used for stabilization purposes, can have a positive effect on the economy's growth, on human capital accumulation, and on welfare, along the transition path. We introduce symmetric productivity shocks into a model in which productivity is augmented...