Fiscal consolidation will go too far if it pushes the economy towards a ?bad equilibrium? with high and growing fiscal deficits and debt, high risk premia on sovereign debt, slumping economic activity and plummeting confidence. In this paper we examine the possible conditions under which fiscal...

We specify an open-economy version of a two-region New Keynesian model for EMU and demonstrate that the result on the unsustainability of the euro with ever-mounting inflation differentials by Wickens (2007) does not hold in general. Strong fiscal consolidation and far-reaching successful...

The public finances crisis has brought binding fiscal rules proposals back to the forefront. The paper analyses their justifications and specifications, either in a classical or in a Keynesian framework. There is no evidence that public deficits were caused by fiscal indiscipline in recent years...

The public finances crisis has brought binding fiscal rules proposals back to the forefront. The paper analyses their justifications and specifications, either in a classical or in a Keynesian framework. In the recent period there is no evidence that public deficits were caused by fiscal...

This paper proposes indicators to assess government debt sustainability in the medium and long term. We follow the methodological approach by Bohn (2008) and distinguish three channels that contribute to sustainable government finances: economic growth, real interest payments and fiscal...

The main purpose of this paper is to understand the course of macroeconomic policy in Europe in the light of several theories which have shown that it was barely adapted to the different shocks that have hinted the European economy in the last two decades. As a result, the performance of the EU...

The economic and financial crisis has given way to Keynesian fiscal policy. To avoid a collapse of economic and financial system, all OECD countries have implemented recovery plans. Even if the uncertainty regarding the recovery is high, time is now, in most countries, for the adoption of fiscal...

It is well-known that estimates of fiscal policy effects differ a lot. In this paper we try get some idea of the magnitude of these differences and the underlying reasons for these differences. In the European Monetary Union we face wide cross-country differences in fiscal institutions and key...

We project the path of the public debt and primary balances for a number of countries in the euro area under a fiscal rule based on a set of estimated fiscal policy reaction functions. Our fiscal rule represents a fiscal analogue to a well-known monetary policy rule, and it is calibrated using...