We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This...

There was no macroeconomic policy in the classical system of economic thought. Monetary policy was determined without discretion within the Gold Standard, and budget outcomes were guided by a `balanced budget rule`. Intellectual and policy support for the classical rules evaporated when large...