How do cyclical fiscal stabilisation policies affect welfare and government bond risk premia? Using a new Keynesian model we find that the effects of fiscal policy rules on the bond premium and welfare crucially depend on the source of business cycle fluctuations. The overall effect is estimated...

Both the optimal inflation target and the optimal degree of output stabilization are found to be conditional on the prevailing wage bargaining structure. If monopolistic wage setters act as strategic leaders of the monetary policy game, an explicit inflation targeting regime removes inflation...

Inflation targeting involves using all available information in stabilizing inflation around some target rate (Svensson, 2003). Inflation is typically at the very end of the transmission mechanism and hence its determination is subject to much model uncertainty which the central bank will want...

Monetary policy transmission lags create credibility problems for the inflation-targeting policy maker who acts under discretion. We show that if prices react to monetary policy with a longer lag than output, the welfare maximizing inflation-targeting policy implies no policy stabilization of...

We estimate the ECB's monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB's Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function...

We investigate the causes of the Finnish Great Depression, 1990-1993. We find that the collapse of the overheated financial and banking sectors starting in 1989 was the trigger of the economic crisis. Foreign shocks, which include the collapse of trade with USSR in 1991, can account for at most...