While the financial protection measures enacted by the ECB and the community of Eurozone members have calmed financial markets, they have left the competitiveness problem of the Eurozone’s southern countries and France unresolved. The paper compares price inflation before the crisis with the...

This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any...

We consider an economy where competing political parties alternate in office. Due to rent-seeking motives, incumbents have an incentive to set public expenditures above the socially optimum level. Parties cannot commit to future policies, but they can forge a political compromise where each...

The combination of discretionary monetary policy, labor-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions Although an inflation target eliminates this inflation bias, it creates a...

Fiscal policy has become quite controversial in the post-Keynesian era, the debate over the Obama stimulus package being a contentious recent example. Some pundits go so far as to take the position that macroeconomic theory has failed to meaningfully progress in terms of providing useful...

The literature on estimating macroeconomic effects of fiscal policy requires suitable instruments to identify exogenous and unanticipated spending shocks. So far, the instrument of choice has been military build-ups. This instrument, however, largely limits the analysis to the US as few other...

Ramey (2011a) and others argue that increases in government spending associated with wars and military build-ups constitute a good instrument for measuring the macroeconomic effects of fiscal shocks. We argue that this instrument has two important drawbacks: the composition of government...

We investigate the short-term effects of fiscal adjustment on economic activity in 20 OECD countries from 1970 to 2009. We compare two approaches: the traditional approach based on changes in cyclically adjusted primary balance (CAPB) and the narrative approach based on historical records....

We investigate the macroeconomic effects of government spending shocks in Korea. We compare results obtained with two alternative approaches: the narrative approach and Structural Vector-Autoregressive model (SVAR). We propose a new methodology for identifying exogenous and unexpected fiscal...

When the government lacks the ability to commit to a tax policy over time, agents’ involvement in imperfect financial markets can be welfare improving. Agents borrow against their promised income in markets that are incomplete in the sense that claims cannot be resold without loss. Taking...