This paper revisits the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004), who show that if there exist nominal price rigidities and private sector credit constraints, and the credit multiplier depends on real interest rates, then the optimal monetary policy response to...

This paper revisits the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004), who show that if there exist nominal price rigidities and private sector credit constraints, and the credit multiplier depends on real interest rates, then the optimal monetary policy response to...

This paper develops a simple Keynesian model of growth with endogenous technological change in which the long-run rate of growth of the economy is determined by both demand and supply forces to examine the effects of government fiscal policy. The paper first assumes that the government budget is...

The paper traces the treatment of fiscal policy in mainstream Keynesian models, from IS-LM over simple dynamic New Keynesian models to the most sophisticated New Keynesian dynamic stochastic general equilibrium (DSGE) models and compares it with stylized empirical facts on the impact of fiscal...

Austerity measures have been tested in developing countries for several decades under the pseudo name of ‘structural adjustment programmes’ following the recommendations and under the supervision of the World Bank (WB) and the International Monetary Fund (IMF). Evidence indicates...

Current macroeconomics, the ‘New Consensus Macroeconomics’, downgrades significantly the role of fiscal policy as a stabilisation instrument of macroeconomic policy. This paper argues that fiscal policy deserves to be properly upgraded. More recent theoretical and empirical...

This paper presents a framework to assess the likely impact of fiscal austerity in the Euro area, as a response to the turmoil in the financial markets. We provide some evidence on the sequence of events which generated public deficits and debts, and show that rising debts and deficits were the...

The classical argument for free trade stressed the possibilities of economic growth by exploiting the gains from trade. A trade surplus per se was not the main objective; presumably the argument was that trade would be balanced at the new higher growth rate. Moreover, the arguments for free trade...

We investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance. The recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies. In contrast, we show, conditioning on a...

This paper examines why fiscal policy is procyclical in developing as well as developed countries. We introduce the concept of fiscal transparency into a model of retrospective voting, in which a political agency problem between voters and politicians generates a procyclical bias in government...