Based on structural VAR evidence for the U.S., we document that a rise in government spending generates three facts: (1) an appreciation of the terms of trade; (2) a fall in the price of traded vs. non-traded goods (proxied by the price of goods relative to services), and (3) a positive co-movement...

We analyze welfare maximizing monetary policy in a dynamic two-country model with price stickiness and imperfect competition. In this context, a typical terms of trade externality affects policy interaction between independent monetary authorities. Unlike the existing literature, we remain...

We lay out an optimizing multicountry framework suitable for fiscal policy analysis in a monetary union. We show that, for any given member country, the relinquishment of monetary policy independence, coupled with nominal price rigidity, generates a motive for fiscal stabilization beyond the...

I show how to implement in a simple manner the comparison of alternative monetary policy rules in a two-country model of the new generation. These rules are: Full Price Stability, Taylor, Fixed and Managed Exchange Rates. I find, first, that the exchange rate dynamic is non-stationary unless...

We lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union. The monetary authority sets a common interest rate for the union, whereas fiscal policy is implemented at the country level, through the choice of government spending. In the presence of...

We study optimal monetary policy in an economy with nominal private debt, borrowing constraints and price rigidity. Private debt reflects equilibrium trade between an impatient borrower, who faces an endogenous collateral constraint, and a patient saver, who engages in consumption smoothing....

We document that variations in government purchases generate a rise in consumption, the real and the product wage, and a fall in the markup. This evidence is robust across alternative empirical methodologies used to identify innovations in government spending (structural VAR vs. narrative...