Standard theory finds that, given uncovered interest parity, sterilized foreign exchange intervention should not affect equilibrium prices and quantities. This paper shows that when, as in the data, taxation is not sufficiently flexible in response to spending shocks, uncovered interest parity...

Recent fiscal stimulus packages depend for their effectiveness on the assumption of non-Ricardian savings behavior. We show that, under the same assumption, higher fiscal deficits can have problematic implications if they turn out to be permanent. First, if they occur in large countries they...