This paper suggests that in a monetary union: (i) fiscal policies should be delegated with optimal contracts, perhaps written over the deficit; (ii) policymakears would have no incentives to deviate by forming coalitions from the resulting equilibrium when exchange of information is allowed for....

In a wide variety of international macro models monetary policy cooperation is optimal, non-cooperative policies are inefficient, but optimal policies can be attained noncooperatively by optimal design of domestic institutions. We show that given endogenous institutional design, inefficiencies...

This paper argues that delegation (optimal institutional design) is not a solution to the dynamic inconsistency problem‚ and can even reinforce it. We show that `optimal` delegation is not consistent with government`s incentives. We solve for delegation schemes that are consistent with these...

This paper analyses the effect of limits on fiscal deficits when fiscal policy outcomes depend on automatic stabilizers and when fiscal rules lack perfect credibility. The model developed, which includes interactions between monetary and fiscal policy, provides theoretical support for existing...

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset...