Interest rates on public debt have for several years now fallen short of GDP growth rates in much of the Western world. In his presidential address to the AEA Blanchard argued that this implies that there are no fiscal costs to high debt (Blanchard, 2019).1 In this paper we argue that the safe...

This paper utilizes a very simple model to study the timing and determinants of speculationagainst a fixed exchange rate regime when investors are heterogeneous because of locationaldifferences. Location matters because resident players may incur smaller costs when takinga short-position, are...

Poland edged towards hyperinflation towards the latter half of 1989,but inflation fell dramatically after drastic reformswere enacted in January of 1990. We analyse the consistency betweenfiscal deficits and inflation targets and assess Poland's domestic and foreign debt management policies and...

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...

We consider models where the Ramsey-optimal fiscal policy under Full Commitment (FC) is time-inconsistent and define a new notion of optimal policy, Limited-Time Commitment (LTC). Successive one-period lived governments can commit to future plans over a finite horizon. We provide a sufficient...

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...

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...