Recent empirical evidence by Fair (2002, 2005) and Giordani (2003) shows that a positive inflation shock with the nominal interest rate held constant has contractionary effects. These results cannot be reconciled with the standard "New Synthesis" literature. This paper reconsiders the effects of...

This paper studies the issue of equilibrium determinacy under monetary and fiscal policy feedback rules in an optimizing general equilibrium model with overlapping generations and flexible prices. It is shown that equilibria may be determinate also when monetary and fiscal policies are both...