This paper considers two challenges that improvements in private-sector information-processing capabilities may pose for the effectiveness of monetary policy. It first considers the consequences of improved information about central-bank actions, and argues that the management of expectations...

If Stage Three of EMU starts on January 1, 1999, transition issues remain on two time scales. Until July 1, 2002, national currencies and the euro co-exist as legal tender. We argue that intra-EMU currency risk exists in principle during that period, but that no EMU member can be forced out...

It is not common for an entire scholarly literature to be based on a fallacy, that is, 'on faulty reasoning; misleading or unsound argument'. The 'fiscal theory of the price level', recently re-developed by Woodford, Cochrane, Sims and others, is an example of a fatally flawed research...

This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions. It shows, in the context of a simple model of optimizing private-sector behavior, that such inertial policy can be optimal. The...

The paper considers ways of avoiding a liquidity trap and ways of getting out of one. Unless lower short nominal interest rates are associated with significantly lower interest volatility, a lower average rate of inflation, which will be associated with lower expected nominal interest rates,...

The paper first reviews the budget identities of the fiscal and monetary authorities and the solvency constraint or present value budget-constraint of the consolidated public sector, for closed and open economies. It then discusses the new conventional wisdom concerning the fiscal roots of...

Debt neutrality is said to occur if, given a program for public spending on current goods and services over time, the real equilibrium of the economy (private consumption, investment, relative prices, etc.) is independent of the pattern of government borrowing and lump-sum taxation over time....

The paper considers the response of a small, open dependent economy to a variety of fiscal and financial shocks as well as the influence of alternative budget balancing rules on the response of the system to such external shocks as a change in the world interest rate. The approach allows for...

The paper studies the effects of alternative financing policies in the open economy.There is a non-trivial role for financial policy because of the failure of first-order debt neutrality due to uncertain private lifetimes. Both the single-country case and the interdependent two-country case are...

The paper develops a forward-looking comprehensive accounting framework for the public sector.By integrating the public sector budget constraint forward in time the government's present value budget constraint (PVBC) is obtained. In addition to the familiar financial assets and liabilities,...