We provide an introduction to optimal fiscal and monetary policy using the primal approach to optimal taxation. We use this approach to address how fiscal and monetary policy should be set over the long run and over the business cycle.We find four substantive lessons for policymaking: Capital...

We analyze the setting of monetary and nonmonetary policies in monetary unions. We show that in these unions a time inconsistency problem in monetary policy leads to a novel type of free- rider problem in the setting of nonmonetary policies, such as labor market policy, fiscal policy, and bank...

Detailed macroeconomic data to accompany the article in the Review of Economic Dynamics

Both Chile and Mexico experienced severe economic crises in the early 1980s, but Chile recovered much faster than did Mexico. Using growth accounting and a calibrated dynamic general equilibrium model, we conclude that the crucial determinant of this difference between the two countries was the...

No, unless technology shocks account for virtually all of the fluctuations in output.