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...

This paper assesses the role of sovereign risk in explaining macroeconomic fluctuations in Turkey. We estimate two versions of a simple New Keynesian small open economy model on quarterly data for the period 1994Q3-2008Q2: A basic version and a version augmented by a default premium on...

We examine the setting of national competition policy in a two-country setting,emphasizing the relationship of trade to the goals of competition policy (suchas the degree and nature of competition). The issues we address involve thegeneral equilibrium distributional effects of competition...

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...