Business cycles reflect changes over time in the amount of trade between individuals. In this paper we show that incorporating explicitly intra-temporal gains from trade between individuals into a macroeconomic model can provide new insight into the potential mechanisms driving economic...

We utilize an overlapping generations model with endogenous production and incomplete markets to quantify the distortionary costs associated with financing the increase in government expenditures directed to investments in the private sector in 2008 and 2009 (a.k.a. ‘the bailout’), and its...

This paper discusses the conditions under which currency unions would be desirable and viable. We discuss and present new empirical evidence concerning the operation of existing currency unions in federal states and among regional country groupings. In particular, we examine the traditional...

In a competitive two-country overlapping generations model with perfect capital mobility, a plan that is individually Pareto optimal (that is Pareto optimal with respect to individual preferences) can be sustained without coordination of national fiscal policies where the fiscal arsenal is...

As a companion to a previous paper, monetary and fiscal policy are analyzed in (a) a small open economy and (b) a two-country world, where in addition to a fixed wage causing unemployment, countries now produce specialized products whose prices are fixed, causing excess supply. There are two...

Empirical fiscal policy reaction functions based on ex-post data cannot be said to describe fiscal policymakers intentions because they utilise data which did not exist when their decisions were made. A characterisation of what fiscal policy makers were trying to do requires real time data. This...

The paper first reviews the budget identities of the fiscal and monetary authorities and the solvency constraint or present value budget constraint of the consolidated public sector, for both closed and open economies. It then discusses the new conventional wisdom concerning the fiscal roots of...

This paper offers a critique of the UK government's Medium Term Financial Strategy from a policy optimization perspective. It argues that recent versions of the MTFS can be interpreted as representing the outcome of a policy optimization exercise, but that certain key aspects remain unclear....

This paper presents an investigation of the relationship between fiscal policies, fundamental equilibrium real exchange rates and misalignments under fixed nominal exchange rate regimes like those proposed by McKinnon and supply-side fiscal policy. The medium-run effects operate mainly through...

This survey essay considers how rational expectations have changed our evaluation of monetary policy. In the first section, various underpinnings of the "Phillips curve" relation between inflation and output are reviewed. All are concluded to be products of particular institutional set-ups whose...