We propose a regime-switching approach to deal with the lower bound on nominal interest rates in dynamic term structure modelling. In the "lower bound regime", the short term rate is expected to remain constant at levels close to the effective lower bound; in the "normal regime", the short rate...

This paper investigates the in inflationary effects of fscal policy in an optimizing general equilibrium monetary model with capital accumulation, exible prices and wealth effects. The model is calibrated to Euro Area quarterly data. Simulation results show that government defcits, high debt...

The aim of this paper is twofold. First, for West Germany, France, Italy and US, we econometrically select within a SVAR model some fiscal policy regimes, i.e. a u0094set of rulesu0094 for the implementation of fiscal policies. Second, we identify the fiscal policy shocks related to different...

This paper develops a model with multiple steady states (low tax and unemployment rate versus high tax and unemployment rate) in which equilibrium selection is not conditioned on a sunspot variable. Instead, large enough shocks initiate unavoidable transitions from one regime to the other. The...

Among the harmful effects of inflation, the negative consequences of inflation volatility are of particular concern. These include higher risk premia, hedging costs and unforeseen redistribution of wealth. This paper presents panel estimations for a sample of OECD countries which suggest that...

We use a Vector Auto Regression (VAR) analysis to explore the (spill-over) effects of fiscal policy shocks in Europe. To enhance comparability with the existing literature, we first analyse the effects of these shocks at the national level. Here, we employ identification based on Choleski...

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of...

This paper provides a study of bond yield differentials among EU eurobonds issued between 1991 and 2002. Interest differentials between bonds issued by EU countries and Germany or the USA contain risk premia which increase with the debt, deficit and debt-service ratio and depend positively on...

This paper surveys intergenerational altruism in neoclassical growth models. It first examines Barro's approach to intergenerational altruism, whereby successive generations are linked by recursive altruistic preferences. Individuals have an altruistic concern only for their children, who in...

Using a panel of OECD countries from 1960 to 2002, this paper shows that financial markets value fiscal discipline. Interest rates, particularly those of long-term government bonds, decrease when countries' fiscal position improves and increase around periods of budget deteriorations. Stock...