It is widely recognised that fiscal policy will have greater responsibilities for cyclical stabilisation in the EMU, given the loss of the monetary instrument at national level. At the same time, the EMU’s budgetary framework emphasises the need to rely on automatic fiscal stabilisers, rather...

In this paper we incorporate the term structure of interest rates into a standard inflation forecast targeting framework. Learning about the transmission process of monetary policy is introduced by having heterogeneous agents – ie central bank and private agents – who have different...