The delegation of monetary policy to a supranational Central Bank creates a conflict of interest between residents of different countries. For example, the country in recession favours more inflation to boost output, while the country in boom prefers exactly the opposite. This conflict gives...

In this paper we analyse how the creation of a single currency regime changes the strategic relationship between policy-makers, both within and across countries. In particular we look at the role of cross-country externalities and lack of commitment. When labour taxation is excessive, due to...

According to conventional wisdom, fiscal policy is more effective under a fixed than under a flexible exchange rate regime. In this paper we reconsider the transmission of shocks to government spending across these regimes within a standard new-Keynesian model of a small open economy. Because of...

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...