The paper aims to shed light on the relation between monetary and fiscal policy in EMU, focusing on the interest rates and deficit dynamics. We present a theoretical model in which monetary and fiscal policy independently interact in a closed economic system through their own instrument, namely,...

This paper examines the views of Hyman Minsky and Abba Lerner on the functional finance approach to fiscal policy. It argues that the main principles of functional finance were relatively widely held in the immediate postwar period. However, with the rise of the Phillips curve, the return of the...

Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general...

Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general...