Does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price...

Openness requires optimal monetary policy to deviate from the canonical closed economy principle of domestic price stability, even if domestic prices are the only ones to be sticky. The paper reviews this argument using a simple partial equilibrium analysis in an economy that trades in final...