This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reduced form model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables...

Keynesian theory predicts output responses upon a fiscal expansion in a small open economy to be larger under fixed than under floating exchange rates. We analyse the effects of fiscal expansions using a New Keynesian model and find that the reverse holds in the presence of sovereign default...

Large banks derive a funding advantage from being too-big-to-fail, while small banks do not. To estimate the funding advantage we explain the CDS spreads of small banks in six major European countries during the crisis by market fundamentals and bank-specific characteristics. Next, we...

This CPB Discussion Paper proposes indicators to assess government debt sustainability. Sustainable government finances can be achieved via three main channels: fiscal responses, economic growth and financial repression. The fiscal response provides information on the long-term country specific...

The authors analyze a general search model with on-the-job search and sorting of heterogeneous workers into heterogeneous jobs. This model yields a simple relationship between (i) the unemployment rate, (ii) the value of non-market time, and (iii) the max-mean wage differential. The latter...

The sovereign debt problems in European countries have increased the interest in fiscal watchdogs. This paper discusses the world’s oldest fiscal watchdog, CPB Netherlands Bureau for Economic Policy Analysis (CPB). Read also the <a href="http://www.voxeu.org/index.php?q=node/7929" target="_blank">article</a> at "VoxEU.org" , a <a href="http://mostlyeconomics.wordpress.com/2012/04/23/the-worlds-oldest-fiscal-watchdog-cpb-netherlands-bureau-for-economic-policy-analysis/" target="_blank">blog</a> at "Mostly Economics" and...

This CPB Discussion Paper highlights potential uses of simple, small models where large traditional models are less flexible. (updated 22/12/2011). We run a number of experiments with a small two variable VAR model of GDP growth and unemployment with both quarterly and yearly data. We compare...

We apply a robust method to the estimation of Impulse Response Functions (IRFs) to paneldata for 99 countries for the period 1974-2001. There is a lively debate on the persistence of the current banking crisis’ impact on output. IRFs estimated by Cerra and Saxena (2008) suggest that these...

We advance three reasons for preferring the Anglo-Saxon business model above the Rhineland model. First, serving multiple stakeholders leads to ill-defined property rights. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs. Third,...

Independent national fiscal institutions can play a major role in fiscal policy and in maintaining and restoring sustainability of a country's public finance. This paper describes the role of CPB in Dutch fiscal policy and discusses its merits and risks. And to what extent can it provide...