In their empirical analysis of Real Business Cycle models for the UK, Holland and Scott (1998) find that they cannot reject the proposition that movements in output are largely determined by 'productivity shocks' which are independent of demand side variables, such as interest rates. In this...

The Fiscal Stability Pact for EMU suggests that constraints on fiscal policy are thought by policy makers to be necessary to ensure that the independent European central bank can control inflation. In this paper we examine the interrelationship between monetary and fiscal policy when both follow...

We examine fiscal and monetary policy interactions by developing a two-country open-economy model under flexible exchange rates, where overlapping generations of consumers supply labour to imperfectly competitive firms that change their prices infrequently. We show in this context that the...

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 four papers which follow were written for a conference organised by the National Institute on 24 February. The papers draw on some of the major developments in macroeconomic research and policy appraisal at the Institute over the last two or three years. Particular emphasis is placed on the...

New trade theory suggests that improvements in the variety and quality of products may be as important as price competitiveness as an explanation of trade flows. This paper tests this proposition for export volumes for the G7 using relative cumulated investment as a proxy for innovation....

The Fundamental Equilibrium Exchange Rate (FEER) method of calculating an equilibrium real exchange rate is the most widely used alternative to PPP. This paper presents the first comprehensive historical test of FEER calculations for six major economies, using estimates for the last twenty...