Standard New Keynesian models predict implausibly large and favorable responses of inflation and output to expansionary forward guidance on interest rates. We find that the introduction of permanent or recurring active fiscal policy dampens the response of output and inflation to forward...

This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns...

This paper aims to contribute to the empirical literature on the interaction between monetary and fiscal policy. We consider the impact of monetary and fiscal policy shocks on inflation and output dynamics using a Time-Varying Parameter Factor-Augmented VAR (TVP-FAVAR). In baseline results from...

This paper posits an information channel as the explanation for sudden inflations. Consumers saving via nominal government bonds face a choice whether to acquire costly information about future government surpluses. They trade off the cost of acquiring information about the surpluses that back...

This paper addresses exchange rate determination under a nominal interest peg in a two-country cash-in-advance model. Under two types of cash-in-advance constraints, if both governments peg the nominal interest rate on domestic bonds, there is a continuum of equilibria, each consistent with...

This paper examines the effectiveness of forward guidance in an estimated New Keynesian model with imperfect central bank credibility. Forward guidance and the credibility of the central bank are uniquely modeled by utilizing a game-theoretic evolutionary framework. We estimate credibility for...