Yes, it makes a lot of sense. Using the Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represent household welfare. Moreover, we document that a...

Variable and high rates of price inflation in the 1970s and 1980s led many countries to delegate the conduct of monetary policy to "instrument-independent" central banks and to give their central banks a clear mandate to pursue price stability and instrument independence to achieve it. Advances...

Yes. Using the workhorse Smets and Wouters (2007) model of the U.S. economy, we find that the role of the output gap should be equal to or even more important than that of inflation when designing a simple loss function to represenst household welfare. Moreover, we document that a loss function...

Due to time-inconsistency or political turnover, policymakers' promises are not always fulfilled. We analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised. In this loose commitment setting, the properties of labor and capital income...

Policymakers take into account the possibility of a regime switch and counteract the externalities generated by the alternative regimes. The resulting behavior of inflation and output differs, both qualitatively and quantitatively, from what obtained in regime switches models with simple policy...

We prove the generality of the methodology proposed in Benigno and Woodford (2006). We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so,...

This paper proposes a method and a toolkit for solving optimal policy with imperfect commitment in linear quadratic models. As opposed to the existing literature, our method can be employed in medium- and large-scale models typically used in monetary policy. We apply our method to the Smets and...

We analyze how public debt evolves when successive policymakers have different policy goals and cannot make credible commitments about their future policies. We consider several cases to be able to quantify the effects of imperfect commitment, political disagreement and political turnover....

debt is sensibly increasing in the degree of political disagreement. Lower degree of commitment drives debt toward zero, while the frequency of political turnover does not produce relevant effects.