This paper explores how decentralized, national fiscal policies interact with a common monetary policy in a monetary union. We show that fiscal policy plays a more important ro le in stabilizing country-specific shocks than with national monetary policies. Whereas monetary u nification with an...

Abstract: We examine the dynamic feedback effects of fiscal policies on the government budget and economy activity in a calibrated general equilibrium framework featuring endogenous growth through creative destruction. For several European countries, we find that making tax incentives with...

The equity premium puzzle shows that using standard parameters and setup, the Consumption-based Capital Asset Pricing Model's (CCAPM's) prediction of the premium associated with systematic risk is out by an order of magnitude.The object of this paper is to consider the implications of each of...

The 'noise trader' model of De Long et al. provides a plausible account of the determination of the equity premium.Extension of the model to allow for privatization of publicly-owned assets yields insights into the positive political economy of privatization and into the normative question of...

This paper explores the interaction between centralized monetary policy and decentralized fiscal policy in a monetary union. Discretionary monetary policy su¤ers from a failure to commit. Moreover, decentralized fiscal policymakers impose externalities on each other through the influence of...

Macroeconomic performance in the Economic and Monetary Union (EMU) will be impaired if macroeconomic shocks are largely asymmetric, fiscal policy flexibility is limited, goods markets adjust sluggishly, labour mobility is low and automatic stabilization from federal taxes and government spending...

This paper explores under what conditions a European Monetary Union (EMU) is an optimum currency area. The scope for an EMU increases with convergence of structural and fiscal policies, small money holdings, a conservative European Central Bank, and dependent national central banks. How national...

We study the effects of public investment in a dynamic overlapping-generations model of a small open economy. Boosting public investment stimulates private capital formation, output, employment, and wages in the long run. The impact effects depend critically on whether public capital is modeled...