This paper examines Japan's experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving into a phase of sustained deflation? How quickly should monetary policy respond to sharp...

In this paper, we use an open economy DGE model (SIGMA) to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labor income tax rate. Our...

We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky (so that the supply-side effects of tax changes are more complex than in standard fiscal analyses) and the only available sources of government revenue are...

The announcement of a plan to cut the U.S. federal budget deficit through the Gramm-Rudman-Hollings legislation provides an excellent opportunity to examine the influence of expectations on economic behavior. This paper presents a small forward-looking macroeconomic model and simulates the...

Heterogeneity between unemployed and employed individuals matters for optimal fiscal policy. This paper considers the consequences of welfare heterogeneity between these two groups for the determination of optimal capital and labor income taxes in a model with matching frictions in the labor...

This paper compares the welfare costs and initial dynamics of three alternative inflation stabilization policies using the staggered price model with imperfect credibility and currency substitution developed by Calvo and Vegh (1990). In addition to the policies analyzed by Calvo and Vegh...

Both the OECD and the IMF periodically estimate and publish measures of fiscal impulse to gauge the extent to which fiscal policy in the major industrial countries has become more or less expansive over time. This paper compares these measures analytically and numerically. The paper shows that...

This paper reviews empirical evidence about the effects of changes in U.S. monetary policy and fiscal policy that has been accumulated during recent years in a series of collaborative research projects involving a variety of global macroeconometric models. The paper also considers, in...