This paper assesses how monetary authorities behave and how they interact. Pooled data for the 15 members of the European Union except Luxembourg and five other OECD countries serves to answer these questions. Three basic conclusions emerge. First, fiscal policy responds to the ratio of public...

Do plans for a monetary union in Europe call for limits on the freedom of the member countries to use fiscal policy? To provide a tentative answer, we simulate the IMF model MULTIMOD, given various shocks, in the case of a European Monetary Union consisting only of France and Germany. The...

What purpose does the European Monetary System serve? Who benefits from it? Is it a Deutschmark zone? Or could one argue that, despite the asymmetrical positions of France and Germany, the System does serve a certain collective interest? An attempt to answer these questions reveals a basic...

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...

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modeling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy...

This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. The spending multiplier can be much larger than in the normal situation if the liquidity trap is very prolonged, and the budgetary costs minimal. But given this "fiscal free lunch," it...

In this paper we evaluate internationally agreed limits on public sector debt and deficits, such as those agreed by the EC countries in the Treaty of Maastricht as preconditions for membership in a monetary union. These fiscal convergence criteria require that general government budget deficits...

This paper contains a selective review of some of the key fiscal issues faced by transition economies. The twelve countries that provide the empirical background for this study have all been under Fund programmes for at least some of the time since they initiated their transitions from plan to...

The literature argues that the benefits of an independent Central Bank accrue at no cost to the real side. In this paper, we argue that the lack of correlation between monetary autonomy and output variability is due to the proactive role of fiscal policy when faced with rigid monetary...

This paper shows how the power of fiscal policy to affect consumption can vary depending on the level of public debt. At moderate levels of debt fiscal policy has the traditional Keynesian effects. Current generations of consumers discount future taxes because they may not be alive when taxes...