We study the optimal design of a fiscal union within a currency union using an open economy model with nominal rigidities. We show that the optimal design of a fiscal union depends crucially on the degree of financial integration across countries as well as the elasticity of substitution between...

We study the conduct of monetary policy in a continuum of small open economies. We solve the model globally in closed form without restricting the elasticity of substitution between home and foreign goods to one. Using this global closed-form solution, we give an exact characterization of...

In the financial accelerator literature pioneered by Bernanke, Gertler and Gilchrist (1999) entrepreneurs are myopic and lenders suboptimally choose a safe rate of return on their loans. We derive the optimal lending contract for forward looking entrepreneurs and provide three main results....

We study cooperative and non-cooperative fiscal policy in an open economy model where cross-country risk sharing is imperfect and countries face terms of trade externalities. We show that the optimal form of fiscal cooperation, or fiscal union, is defined by one parameter: the Armington...

In the financial accelerator literature pioneered by Bernanke, Gertler and Gilchrist (1999) entrepreneurs are myopic and loans have a fixed rate of return by assumption. We relax both of these assumptions and derive the optimal lending contract for forward looking entrepreneurs who can choose a...

It is commonly assumed that binding collateral constraints amplify the impact of aggregate shocks on the economy. However, we show that when firms can hedge against aggregate risk with state-contingent lending contracts, binding collateral constraints no longer amplify shocks relative to the...

We study cooperative and non-cooperative fiscal policy in a multi-country model where asset markets are segmented and countries face terms of trade externalities. We show that the optimal form of fiscal cooperation, or fiscal union, is defined by the Armington elasticity of substitution between...

We establish the share of exports in production as a sufficient statistic for optimal non-cooperative monetary policy. Under financial autarky, markups positively co-move with the export share. For complete markets, markups should be procyclical if the export share is procyclical. When central...