This paper investigates the ability of a region participating in a currency union to affect its inflation differential with respect to the union through fiscal policy. We study the interaction between regional fiscal policy and inflation differentials in a flexible-price, two-region model with...

We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy was procyclical. We use the neoclassical growth model to investigate how much these...

Reasoning within the New Neoclassical Synthesis (NNS) we previously recommended that price stability should be the primary objective of monetary policy. We called this a neutral policy because it keeps output at its potential, defined as the outcome of an imperfectly competitive real business...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending and...

We analyze the problem of optimal public investment when government purchases of productive capital assets are financed through income taxes. Virtually all previous work in this literature has prescribed a share of public investment in GDP that is both constant and time consistent. This paper...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government is constrained from using lump sum taxes for achieving intertemporal budget balance. The ratio of debt to gnp, therefore, has consequences for...