In the theory of monetary and fiscal policy interaction, the assumption of Ricardian households isolates the determinants of fiscal policy instrument from the price stabilization policies carried out by the central bank. One of the main implications of the above mentioned Ricardian assumption is...

I characterize optimal monetary and fiscal policy in a stochastic New Keynesian model when nominal interest rates may occasionally hit the zero lower bound. The benevolent policymaker controls the short-term nominal interest rate and the level of government spending. Under discretionary policy,...

We develop a theoretical framework to account for the observed instability of the link between inflation and fiscal imbalances across time and countries. Current policy makers behavior influences agents ' beliefs about the way debt will be stabilized. The standard policy mix consists of a...

This paper provides a somewhat intertemporal microfoundation for IS-LM in an economy where there is a monopoly issuer of medium of exchange, money. The core microfoundation in this model comes from the Arrow-Debreu general equilibrium result that riskless interest rate may not be uniform across...

How much fiscal space do Latin American countries have to increase their tax burdens in the long term? This paper provides an answer through Laffer curves estimates for taxes on labor, capital, and consumption for the six largest emerging economies of the region: Argentina, Brazil, Chile,...

While European countries have engaged in a debate about fiscal policy rules, little is known about the ability of these rules to ensure stable debt and output paths when taxes are distortionary, particularly in a small open economy. In this situation, it turns out that the interaction between a...

The paper examines the role of fiscal and monetary policy on the dynamics of monetary expansion in a macroeconomy. Its microeconomic structure defined by producers with neoclassical production functions, heterogeneous OLG consumers, and a stationary fiscal and monetary policy induces a...

We analyze fiscal consolidations using a New Keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations. We look at spending-based and tax-based consolidations and analyze their effects separately. We find that the effects of...

This paper develops a microfounded dynamic dual-currency model subject to commitment and bargaining frictions featuring endogenous acceptance of alternative currencies as a function of jointly-determined fiscal and monetary policy. Steady-state public expenditures, public debt, distortionary...

This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985-2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may...