The Fiscal Stability Pact for EMU implies that constraints on fiscal policy facilitate inflation control. In this paper we identify two stable policy regimes. When monetary policy seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1995), under the heading of the 'Fiscal Theory of the Price Level' (FTPL). Applications of this theory to open economies operating under flexible exchange rates has suggested...

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy-maker preferences and shock volatilities. This reveals that there have been several changes in...