In addition to containing stable information to explain inflation, state-local expenditures also have a larger share of the forecast error variance of US inflation than the federal funds rate. Non-defense federal expenditures are useful in predicting real output variations and, starting from the...

A New-Keynesian model with deep habits and optimal monetary policy delivers a larger-than-1 fiscal multiplier and consumption crowding in. Optimized Taylor-type rules dominate a conventional Taylor rule. Consumption is crowded out if the Taylor rule is suboptimal or if commitment is absent.