This paper investigates determinacy of equilibrium in a canonical New Keynesian model under different monetary and fiscal policy rules. It is shown that a simple monetary rule that responds aggressively to inflation is a necessary condition for equilibrium determinacy, when fiscal policy is...

Stage Three of the European Monetary Union (EMU) will start on January 1, 1999. The new currency area, for which the name "Euroland" has been coined, will comprise 11 countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. The...

The decision on EMU strongly affects the course of monetary and fiscal policies in 1997 and especially in 1998. We assume that the monetary union will start in January 1, 1999 with a sizable number of participating countries. Once the decision on the members is made in the spring of 1998, any...

The cyclical situation at the beginning of the European Monetary Union (EMU) is favorable: The upswing in Euroland has firmed, unemployment is going down, and inflation is low. However, economic growth outside the new currency area has weakened significantly during 1998, and fears are mounting...

Since the fall of last year, EMU countries have experienced a slowdown in economic activity triggered by a deceleration of exports. The expansion of internal demand has been more or less intact due to low interest rates and higher terms of trade. Consumer confidence has continued to rise and...

The paper explores the interaction between the proposed monetary union for ECOWAS and structural reforms of fiscal policy. The effects depend to a large extent on the degree of similarity of member countries. In a monetary union of similar countries, member states run a more distortive fiscal...

Pre-Accession Transition Countries (PATCs) aim at early admittance to the monetary club. Their fiscal indicators – deficit and debt - do not show any serious symptoms. Closer scrutiny reveals, however, that the interest burden of their public debt might be underestimated, and that...

This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption,...

This paper analyzes the dynamic effects of anticipated monetary and fiscal policies in a large monetary union, which is characterized by asymmetric interest rate transmission. We explicitly solve the asymmetric three-country model using the decomposition methods of Aoki (1981) and Fukuda (1993)....