Should the government run fiscal deficits in response to an adverse external shock that warrants transfer of resources from production of non-traded to traded goods? This paper considers normative fiscal policy implications of sectoral adjustment costs in a two-sector model with overlapping...

The present paper reassesses the role of monetary conservatism in a setting with nominal government debt and endogenous fiscal policy. We assume that macroeconomic policies are chosen by monetary and fiscal policy makers who interact repeatedly but cannot commit to future actions. The real level...

This paper analyses and compares the efficiency of alternative incentive compatible grant schemes under asymmetric information relieving subnational governments of excessive debt burden. They allow intervention into local debt, local tax or complete local fiscal policy. In the fist case,...