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 the effect of different types of macroeconomic impulses on the nominal yield curve. We employ two distinct approaches to identifying economic shocks in VARs. Our first approach uses a structural VAR due to Galí (1992). Our second strategy identifies fundamental impulses from...

We study the effects of nominal debt on the optimal sequential choice of monetary and debt policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium....

What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore cross-country spillovers of tax...

This paper explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors....

Throughout the 1990s states created budget stabilization (rainy day) funds to help provide counter-cyclical support in their budgeting process. Despite the sweeping popularity of such funds, many states have failed to adopt either contribution or expenditure rules that would create significant...

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy were procyclical. We use the neoclassical growth model to investigate how much...

This paper investigates the response of real wages and hours worked to an exogenous shock in fiscal policy. We identify this shock with the dynamic response of government purchases and tax rates to an exogenous increase in military purchases. The fiscal shocks that we isolate are characterized...