The paper considers ways of avoiding a liquidity trap and ways of getting out of one. Unless lower short nominal interest rates are associated with significantly lower interest volatility, a lower average rate of inflation, which will be associated with lower expected nominal interest rates,...

The paper provides a formalisation of the monetary folk proposition that fiat base money is an asset of the holder but not a liability of the issuer. The issuance of irredeemable fiat base money can have pure fiscal effects on private demand. With irredeemable fiat base money, weak restrictions...

The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its intertemporal budget constraint. Second, Woodford's fiscal theory of the price level, according to which...

This paper develops an analytical framework for the analysis of targeting rules for monetary policy. We derive the optimal money supply rule and analyze the implications of other monetary rules including rules that target nominal GNP, the price level, the monetary growth rate and the...

(2) The constrained price setters of the Calvo model implement an ill-posed, arbitrary price indexation rule, such as the lagged partial indexation rule used by Woodford to make a case for price stability

The paper considers the response of a small, open dependent economy to a variety of fiscal and financial shocks as well as the influence of alternative budget balancing rules on the response of the system to such external shocks as a change in the world interest rate. The approach allows for...

This paper develops a unified framework for the analysis of wage indexation and monetary policy in the presence of supply shocks. We first present simple formulae for the optimal wage indexation rule and for the optimal money supply rule. In order to set the stage for an evaluation of departures...

The paper develops a forward-looking comprehensive accounting framework for the public sector.By integrating the public sector budget constraint forward in time the government's present value budget constraint (PVBC) is obtained. In addition to the familiar financial assets and liabilities,...

This paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention. The model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that...