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This paper derives restrictions on monetary and fiscal policies for determinate equilibria in a two-country monetary union with autarkic members. It finds that a central bank following the Taylor principle may not be sufficient for determinacy unless accompanied by one 'active' fiscal authority...
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that responds aggressively to output and inflation may force the monetary authorities to adopt significantly more … aggressive output and inflation stabilization policy than suggested by the Taylor Principle. We also show how when monetary …
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