In the workhorse DSGE model, the optimal steady state inflation rate is near to zero or slightly negative and inflation is almost completely stabilized along the business cycle (Schmitt-Grohè and Uribe, 2011). We reconsider the issue, allowing for agent heterogeneity in the access to the market...

We challenge the widely held belief that New-Keynesian models cannot predict optimal positive inflation rates. In fact these are justi…fied by the Phelps argument that monetary fi…nancing can alleviate the burden of distortionary taxation. We obtain this result because, in contrast with...

We estimate a medium scale DSGE model for the Euro Area to gain intuition on the importance of Limited Asset Market Participation (LAMP). Our results suggest that LAMP is sizeable (39% of households over the 1993-2012 sample) and important to understand EMU business cycle, especially, in the...

Under limited asset market participation fiscal consolidations have a deep and prolonged deflationary effect, causing substantial short term welfare losses to households whose access to financial markets is limited. We show that it is possible to both reduce public debt and boost consumption of...

This paper contributes to the goal-versus-instrument independence debate for the ECB exploring how these alternative monetary arrangements perform when the fiscal authority pursues a strategy of debt reduction in the long term but retains fiscal flexibility in response to supply shocks. If...

We estimate the unrecorded economy in 49 economies from 1981 to 2005. Our study is based on electricity consumption series which are fil- tered to account for technological change and for the changing weight of the energy-intensive industrial sector. In contrast with studies based on the MIMIC...

Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen...

The empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries \break their promises"? We show that a stable socio-political...

We reconsider the issues of fiscal policy interdependence in a monetary union, challenging the view that non co-ordination is always preferable. Moreover, we show that an expenditure bias occurs irrespective of the fiscal regime in place. We argue that a contractualist approach à la Walsh...

Building on widespread criticisms of current EMU institutional arrangements, we sketch a reform proposal for EMU macroeconomic institutions. We advocate the adoption of targets for both monetary and fiscal policies, to be integrated by a system of checks and balances. As for fiscal policy,...