This paper explores ways to integrate model uncertainty into policy evaluation. We first describe a general framework for the incorporation of model uncertainty into standard econometric calculations. This framework employs Bayesian model averaging methods that have begun to appear in a range of...

We characterize monetary and fiscal policy rules to implement optimal responses to a substantial decline in the natural rate of interest, and compare them with policy decisions made by the Japanese central bank and government in 1999—2004. First, we find that the Bank of Japan’s policy...

We assess the response of fiscal policy to developments in asset markets in the US and the UK. We estimate fiscal policy rules augmented with aggregate wealth, wealth composition (i.e. financial and housing wealth) and asset prices (i.e. stock and housing prices) using: (i) a linear framework...

This study is based on the idea that inadequate use of fiscal policy through restrictive policies shifts the short-run demand curve that in turn induces shifts in the long-run supply curve leading to a dynamic reduction of growth. The analogy with the old metaphor of the Spanish horse seems...

Credible fiscal plans that aim at restoring fiscal sustainability will be essential to counter the present increase in debt levels all across Europe. The macroeconomic scenario of such plans will be crucial. This paper assesses whether there is any advantage in delegating (part of) such power to...