We study cross-country insurance in a currency union with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given...

If Sweden becomes member of the European currency union, the conditions for fiscal policy will change. The stabilization policy objectives will, however, hardly change with a membership. At the same time it is not clear if the need for stabilizing the Swedish economy will increase or decrease....

This paper examines the mechanisms through which government spending affects the dynamics of the real exchange rate. Using a two-sector dependent open economy model with intersectoral mobility costs for private capital, we show that public investment generates a (i) non-monotonic U-shaped...

This paper investigates the relationship between fiscal performance in 28 sub-Saharan African countries over the 1980-91 period with movements in the exchange rates, the terms of trade, and other macroeconomic aggregates. It finds that the tax base in most of these countries is heavily dependent...

What circumstances or policies leave sovereign borrowers at the mercy of self-fulfilling increases in interest rates? To answer this question, we study the dynamics of debt and interest rates in a model where default is driven by insolvency. Fiscal deficits and surpluses are subject to shocks...

We welfare rank various tax-spending-debt policies in a New Keynesian model of a small open economy featuring sovereign interest-rate premia and loss of monetary policy independence. When we compute optimized state-contingent policy rules, our results are: (a) Debt consolidation comes at a...

Per effetto della crisi economica che si è realizzata con particolare intensità nel corso del 2009, molte economie avanzate hanno intrapreso percorsi di risanamento fiscale. Nell'ambito di tali misure un ruolo non trascurabile è rappresentato dagli interventi di riduzione della spesa per il...

We study optimized monetary and fiscal feedback policy rules. The setup is a conventional New Keynesian DSGE model calibrated to match data from the euro area. Our aim is to welfare rank alternative tax-spending policy instruments used for shock stabilization and/or debt consolidation when, at...

G-Cubed is a multi-country, multi-sector, intertemporal general equilibrium model that has been used to study a variety of policies in the areas of environmental regulation, tax reform, monetary and fiscal policy, and international trade. It is designed to bridge the gaps between three areas of...

This paper analyzes the role of nominal assets in ranking intertemporal budget policies in a growing open economy. The budget policies are ranked in terms of the public's intertemporal stock of tax liabilities. Our main result is that, in a small open economy, the valuation of private and public...