In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk. This is unlikely to be the case in OLG economies, where, the equilibrium interest rate may differ from the policy-maker’s...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1998), under the heading of the ‘Fiscal Theory of the Price Level’ (FTPL). Some authors have suggested that this theory provides a rationale for the Pact for Stability and...

Taylor rules which link short-term interest rates to fluctuations in inflation and output, have been shown to be a good guide (both positively and normatively) to the conduct of monetary policy. As a result they have been used extensively to model policy in the context of both closed and open...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1995), under the heading of the ‘Fiscal Theory of the Price Level’ (FTPL). Applications of this theory to open economies operating under flexible exchange rates has suggested...

Recent attempts to incorporate optimal fiscal policy into New Keynesian models subject to nominal inertia, have tended to assume that policy makers are benevolent and have access to a commitment technology. A separate literature, on the New Political Economy, has focused on real economies where...

This paper examines the interactions between multiple national fiscal policy- makers and a single monetary policy maker in response to shocks to govern- ment debt in some or all of the countries of a monetary union. We assume that national governments respond to excess debt in an optimal manner,...

We consider optimal monetary and fiscal policies in a New Keynesian model of a small open economy with sticky prices and wages. In this benchmark setting monetary policy is all we need - analytical results demonstrate that variations in government spending should play no role in the...

Recent attempts to incorporate optimal fiscal policy into NewKeynesian models subject to nominal inertia, have tended to assume that policymakers are benevolent and have access to a commitment technology. A separateliterature, on the New Political Economy, has focused on real economies...