We study optimal time-consistent fiscal policy in a neoclassical economy with endogenous government spending, physical capital and public debt. We show that a dynamic complementarity between the households’ consumption-savings decision and the government’s policy decision gives rise to a...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they...

This paper studies whether the out-of-sample forecasting performance of a dynamic stochastic general equilibrium (DSGE) model improves by taking its nonlinear rather than its linear approximation to the data. We address this question within a New Keynesian monetary economy, considering both...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses scal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they...

We describe a simple mechanism that generates inflation persistence in a standard sticky-price model of optimal fiscal and monetary policy. Key to this mechanism is that policies are implemented under discretion. The government's discretionary incentive to erode the real value of nominal public...

We study the monetary instrument problem in a model of optimal discretionary fiscal and monetary policy. The policy problem is cast as a dynamic game between the central bank, the fiscal authority, and the private sector. We show that, as long as there is a conflict of interest between the two...

We use low-order projection methods to compute numerical solutions of the basic neoclassical stochastic growth model. We assess the quality of the obtained solutions, and compare them to numerical approximations derived with first and second-order perturbation techniques. We show that projection...

This paper studies optimal fiscal and monetary policy in a stochastic economy with imperfectly competitive product markets and a discretionary government. We find that, in the flexible price economy, optimal time-consistent policy implements the Friedman rule independently of the degree of...

A large variety of markets, such as retail markets for gasoline or mortgage markets, are characterized by a small number of firms offering a fairly homogenous product at virtually the same cost, while consumers, being uninformed about this cost, sequentially search for low prices. The present...

This paper evaluates the performances of Perturbation Methods, the Parameterized Expectations Algorithm and Projection Methods in finding approximate decision rules of the basic neoclassical stochastic growth model. In contrast to the existing literature, we focus on comparing numerical methods...