We reassess the result of unsustainability of the euro with respect to inflation differentials claimed by Wickens (2007) by specifying an open-economy version of a two-region New Keynesian model for EMU and demonstrate that the result by Wickens does not hold in general. We are able to derive a...

We reassess the result of unsustainability of the euro with respect to inflation differentials claimed by Wickens (2007) by specifying an open-economy version of a two-region New Keynesian model for EMU and demonstrate that the result by Wickens does not hold in general. We are able to derive a...

Monetary authorities in the U.S. and U.K. commenced special program purchases of longer-term government bonds in March 2009. One of the purposes of the programs was to influence the prices of assets acquired, that is, to lower middle- and long-term interest rates. The U.K. program played a role...

This paper highlights that real interest rates in Brazil have declined substantially over time, but are still well above the average of emerging market inflation targeting regimes. The adoption of an inflation-targeting regime and better economic fundamentals (reduction in inflation volatility...

This paper uses two established DSGE models (QUEST III and Smets-Wouters) to assess the impact of fiscal spending cuts on output and, in particular, also on inflation in the euro area under alternative settings for monetary policy. We compare four different settings of constrained monetary...

This paper studies the main channels through which interest rate normalization has fiscalimplications in the United States. While unexpected inflation reduces the real value ofgovernment liabilities, a rising policy rate increases government financing needs because ofhigher interest payments and...

This paper develops a tractable model of a monetary union with a sound fiscal governance structure and shows how in such environment the design of monetary policy above and at the lower bound constraint on short-term interest rates can be linked to well-known findings from the literature dealing...

Over the last few decades, real interest rates have trended downward in many countries. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors such as income inequality. In this paper we explore the claim that these trends may...

In HANK, we show that fiscal policy is an appropriate macroeconomic stabilization tool at the ZLB. Fiscal policy achieves the same macroeconomic aggregates and the same welfare as hypothetically unconstrained monetary policy by replicating its transmission mechanism. Consumption taxes and labor...