This paper studies Ramsey-optimal monetary and fiscal policy in a New Keynesian 2-country open economy framework, which is used to assess how far fiscal policy can substitute for the role of nominal exchange rates within a monetary union. Giving up exchange rate flexibility leads to welfare...

We analyze the macroeconomic implications of a transient interest-rate peg in combination with a QE program in a non-linear medium-scale DSGE model. In this context, we re-examine what has become known as the reversal puzzle (Carlstrom, Fuerst and Paustian, 2015) and provide an analytical...