I characterize optimal monetary and fiscal policy in a stochastic New Keynesian model when nominal interest rates may occasionally hit the zero lower bound. The benevolent policymaker controls the short-term nominal interest rate and the level of government spending. Under discretionary policy,...

We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a "textbook" model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves. In the textbook model with only...

We consider monetary-policy rules with inflation-rate targets and interest-rate or money-growth instruments using a flexible-price, perfect-foresight model. There is always a locally-unique target equilibrium. There may also be below-target equilibria (BTE) with inflation always below target and...

The paper describes the monetary and fiscal policy frameworks in Sweden and analyses how they were established as well as current challenges. Sweden provides a good example of how deep economic crisis, in interaction with independent thinking by academics and other experts as well as policy...

Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the...