We reconsider the role of an inflation conservative central banker in a setting with distortionary taxation. To do so, we assume monetary and fiscal policy are decided by independent authorities that do not abide to past commitments. If the two authorities make policy decisions simultaneously,...

Policymakers often use the output gap, a noisy signal of economic activity, as a guide for setting monetary policy. Noise in the data argues for policy caution. At the same time, the zero bound on nominal interest rates constrains the central bank's ability to stimulate the economy during...

I compare nominal GDP level targeting to flexible inflation targeting in a small New Keynesian model subject to the zero lower bound on nominal policy rates. First, I study the performance of optimal discretionary policies. I find that, for a standard calibration, inflation targeting under...

I study the welfare performance of a policy regime of fiscal activism in which fiscal policy acts as an automatic stabilizer and controls inflation, while monetary policy pegs the nominal interest rate. When evaluated through the lens of a standard New Keynesian model, accounting for price and...

Many argue that, in the presence of a lower bound on nominal interest rates, central banks should use a risk management approach for setting policy, which implies commit- ting to a more expansionary policy to deal with uncertainty about the economic recovery. Using a standard model for monetary...

I evaluate the welfare performance of a target for the level of nominal GDP in a New Keynesian model with unemployment, accounting for a zero lower bound (ZLB) constraint on the nominal interest rate. Nominal GDP targeting is compared to employment targeting, a conventional Taylor rule, and the...