We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and analyze its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is...

We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a tractable canonical system in domestic inflation and the output gap. We employ this framework to analyze the macroeconomic implications of three alternative...

Openness requires optimal monetary policy to deviate from the canonical closed economy principle of domestic price stability, even if domestic prices are the only ones to be sticky. The paper reviews this argument using a simple partial equilibrium analysis in an economy that trades in final...

During a fiscal stimulus, does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the current and/or future adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not...

With perfect credit markets, any (lump-sum) tax redistribution is neutral. We study the e¤ects of a tax redistribution in an economy with heterogenous agents and borrowing constraints. Under ?exible prices, a tax redistribution that favors "the poor" (i.e., the credit constrained) is neutral,...

This paper examines how the the distributive impact of macroeconomic shocks is shaped by selected institutions. It uses a dynamic stochastic general equilibrium (DSGE) framework with heterogeneous agents and an endogenous collateral constraint. The model is based on the “credit view” of...

We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap. We use the resulting framework to analyse the macroeconomic implications of three alternative...

Openness per se requires optimal monetary policy to deviate from the canonical closed-economy principle of domestic price stability, even if domestic prices are the only ones to be sticky. I review this argument using a simple partial equilibrium analysis in an economy that trades in ?nal...