Recent research has stressed the inconsistency between empirical evidence and the theoretical prediction of both the standard real business cycle and the New Keynesian models regarding the impact of fiscal shocks on consumption. Some authors have attempted to bridge this gap by relying on...

We develop a model of a small open economy with optimizing, infinitely lived agents. They have monopoly power over the price of their labour, and wage setting is staggered. We consider the effects of an unanticipated increase in the money supply. In all cases, the exchange rate depreciates...

The theoretical determinants of maximum sustainable government debt are investigated using Diamond's overlapping generations model. A level of debt is defined to be 'sustainable' if a steady state with non-degenerate values of economic variables exists. We show that a maximum sustainable level...