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,...

Kopits draws a parallel between rule-based monetary and fiscal policies and points to their common denominator: the attempt to confer credibility on policy action by removing discretionary intervention. He outlines the evolution of fiscal rules and notes that the last generation of rules, those...