This note examines whether long-term nominal interest rates are cointegrated with budget deficits over the period 1959 to 1990. A key finding of this note is that long-term rates are cointegrated with deficits if a one-year ahead inflation forecast series is used to measure long-term expected...

This paper investigates the ability of a region participating in a currency union to affect its inflation differential with respect to the union through fiscal policy. We study the interaction between regional fiscal policy and inflation differentials in a flexible-price, two-region model with...

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 was procyclical. We use the neoclassical growth model to investigate how much these...

Reasoning within the New Neoclassical Synthesis (NNS) we previously recommended that price stability should be the primary objective of monetary policy. We called this a neutral policy because it keeps output at its potential, defined as the outcome of an imperfectly competitive real business...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending and...