The paper analyzes the relation between institutional quality, such as corruption, in a country and its monetary regime. It is shown that a credibly fixed exchange rate to a low inflation country, like a currency board, can reduce corruption and improve the fiscal system. A monetary union,...

This paper analyzes the link between inflation and democracy in developing countries. In order to address the endogeneity issue of democracy, I use the date of political independence as an instrument for democratic institutions. The application of the criterion of Stock and Yogo (2002, 2005) for...

We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using the model of Angeloni and Faia (2010), that combines a standard DSGE framework with a fragile banking sector, suitably modified and calibrated for the euro area. Credibly announced and fast fiscal...

Joint modelling of fiscal and monetary policies should elucidate on their interaction. We construct an eight-dimensional parsimonious structural vector equilibrium correction model (PSVECM) of the US macro economy over the last five decades. The fiscal deficit is found to be one of the five...

Recent work on financial frictions in New Keynesian models suggest that there is a sizable spread between the risk-less interest rate and the borrowing rate. We analyze the optimal policy mix of monetary and fiscal authorities in a currency union with a country-specific credit spread by...

This paper explores the fiscal devaluation hypothesis in a model of a monetary union characterised by national fiscal and supranational monetary policy. We show that a unilateral tax shift towards indirect taxes in one of the countries produces small but non-negligible long-run effects on output...

We revisit the question whether U.S. fiscal policy in the pre-Volcker period was active or passive. To determine the policy stance, we estimate a DSGE model with monetary and fiscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. In contrast to...

Forward guidance as a tool of unconventional monetary policy can be highly efficient to support aggregate demand and to steer the economy out of the zero lower bound (ZLB). However, the effect that stimulates the economy can give rise to a time-inconsistency problem: if the central bank promises...

Within the context of an agent-based macroeconomic model with dynamic bounded-rational expectations, the most important transmission links between the real sphere of the European economy and the US financial markets crises are simulated: (a) the devaluation of financial assets, (b) global...

This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the...