In recent years the world’s two largest inflation-targeting central banks – the US Federal Reserve (the Fed) and the European Central Bank (ECB) – have revised their monetary policy frameworks in a more progressive direction. Whereas the Fed decided to abandon its strategy of pre-emptive...

Following the sovereign debt crisis of 2012, some southern European countries have debated proposals to leave the Euro. We evaluate this policy change in a standard monetary model with seigniorage financing of the deficit. The main novel feature is that we depart from rational expectations while...