In many countries two decision-making institutions, the government and the central bank, manage fiscal and monetary policy separately. Such decentralization can lead to a change in the optimal inflation-output trade-off. In fact lack of cooperation can result in a change in the position of the...

The persistence of large trade and budget imbalances has led to increasing demands for protectionist policies. Despite a substantial theoretical literature there appears to be no empirical literature on the use of tariffs as a macroeconomic policy instrument. This paper fills that gap, using the...

Rational expectations are often used as a strong argument against policy activism, as they may undermine or neutralize the policymaker’s actions. Although this sometimes happens, rational expectations do not always imply policy invariance or ineffectiveness. In fact, in certain circumstances...

Price and output level convergence between new member states and the existing EU necessarily implies inflation and growth divergence for many years to come. That complicates the conditions for accession to the euro. In this Paper, we focus on debt dynamics for the eight new member states from...

The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary...

Empirical fiscal policy reaction functions based on ex-post data cannot be said to describe fiscal policymakers intentions because they utilise data which did not exist when their decisions were made. A characterisation of what fiscal policy makers were trying to do requires real time data. This...

This paper investigates why the slope of the yield curve predicts future economic activity in Germany and the United States. A structural VAR is used to identify aggregate supply, aggregate demand, monetary policy and inflation scare shocks and to analyse their effects on the real, nominal and...

In this paper we compare the effects of monetary policy on output and prices in the G-7 countries using a parsimonious macroeconometric model comprising output, prices and a short-term interest rate. We identify monetary policy shocks by assuming that they do not affect real output...

The work presented in this paper falls into two parts. First, using a simple model and within the context of the central bank’s objective of price stability, it is shown that the optimal monetary response to unexpected changes in asset prices depends on how these changes affect the central...

In monetary policy strategies geared towards maintaining price stability, conditional and unconditional forecasts of inflation and output play an important role. In this Paper we illustrate how modern sticky-price dynamic stochastic general equilibrium (DSGE) models, estimated using Bayesian...