The Stability and Growth Pact has been under fire ever since it was born.But is the Pact a flawed fiscal rule?Against established criteria for an ideal fiscal rule, its design and compliance mechanisms show strengths and weaknesses. The latter tend to reflect tradeoffs typical of supra-national...

Banking regulation has proven to be inadequate to guard systemic stability in the recent financial crisis. Central banks have provided liquidity and ministries of finance have set up rescue programmes to restore confidence and stability. Using a model of a systemic bank suffering from liquidity...

In Rogoff (1985) it is shown that society can make itself better off by appointing a central banker who places an additional weight on in ation rate stabilization relative to employment stabilization. Using an envelope theorem, Rogoff shows that this additional weight must be positive and...

Recent cross-country studies on the globalization and output-inflation tradeoff correlation find openness has no significant effect on OECD countries. Those studies assume parameter constancy across countries. In this paper, we argue that this assumption does not hold for major industrialized...

This paper analyzes the effect of monetary uncertainty on the inflationary bias and the variance of output and inflation. Monetary policy uncertainty is modeled as a shock to the central banker’s preference for inflation stabilization relative to output stabilization that cannot be observed by...