In this Paper, I analyse the pros and cons of implementing structural reforms of the labour market in booms versus recessions, in light of considerations of social efficiency, political viability, and macroeconomic fine-tuning. While the optimal timing of a reform depends on the relative...

This 2003 Institute for Fiscal Studies Lecture addresses two sets of issues relevant to current and prospective future E(M)U members: the consequences of the Stability and Growth Pact for fiscal-financial sustainability and macroeconomic stability, and some risks associated with operational...

Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR) instrument rules. Using the standard New...

This paper examines the optimal reaction of fiscal policy to permanent and transitory shocks to output in a model of tax and public consumption smoothing. The model predicts that optimal reaction of public expenditures and deficits to transitory shocks should be countercyclical, while optimal...

The paper considers the implications for the EU accession candidates of Central and Eastern Europe of the fiscal-financial constraints imposed by the Stability and Growth Pact and the Maastricht Treaty. Our findings apply also to those current EU members whose initial conditions (e.g....

Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a...

Fear of risk provides a rationale for protracted economic downturns. We develop a real business cycle model where investors with decreasing relative risk aversion choose between a risky and a safe technology that exhibit decreasing returns. Because of a feedback effect from the interest rate to...

Firms expect certain investment expenditures. Firms realize certain investment expenditures. The difference is an investment surprise. With the help of the IFO Investment Survey for the German manufacturing sector we measure firms’ (quantitative) investment expectations and firms’...

In this article, we demonstrate that a small degree of stochastic variation in the depreciation rate of capital can greatly reduce the comovement between hours worked and labour productivity in a neoclassical growth model. The depreciation rate is modeled as a Markov process to place a strict...

This paper develops a new analysis of the U. S. economy in the 1920s that is illuminated by contrasts with the 1990s, and it also re examines the causes of the Great Depression. In both the 1920s and the 1990s the acceleration of productivity growth linked to the delayed effects of previously...