We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and...

It is generally believed that for the power of unit root tests, only the time span and not the observation frequency matters. In this paper we show that the observation frequency does matter when the high-frequency data display fat tails and volatility clustering, as is typically the case for...

We analyse the impact of interactions between monetary and fiscal policy on macroeconomic stability. We find that in the presence of sovereign default beliefs a monetary policy, which aims to stabilize inflation through an active interest rate policy, will destabilize the economy if the feedback...

We decompose capital flows--both debt and equity--into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign to sovereign transactions. Specifically, we...

This paper investigates the international spillovers of government debt and the associated risk of inflation within a monetary union when countries have different pension systems. I use a stochastic two-country two-period overlapping-generations model, where one country has PAYG pensions and the...

In this paper we identify the effects of ageing on the relative price of nontradeables versus tradeables. We consider two cases. In a first specification, age effects only account for short-run dynamics. An alternative case allows for permanent age effects. Estimating the respective cases by...

We develop a Heckscher-Ohlin-Ramsey model, combining dual techniques with classic geometric techniques from trade theory. This framework is used to explore the long-run general equilibrium effects of regional integration (preferential trade agreements). Emphasis is placed on positive mechanics...

Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the...

In this paper it is argued that the slowness of the legislative system implies pre-commitment of legislation for at least the period it takes to change a law. A simple model illustrates the benefit of this pre-commitment.<BR><BR>

We investigate experimentally the economic effects of wage taxation to finance unemployment benefits for a closed economy and an international economy. The main findings are the following. (i) There is clear evidence of a vicious circle in the dynamic interaction between the wage tax and...