The Fiscal Stability Pact for EMU implies that constraints on fiscal policy facilitate inflation control. In this paper we identify two stable policy regimes. When monetary policy seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to...

In the last few years papers have begun to analyse optimal monetary and fiscal policy in models incorporating nominal rigidities where social welfare is derived from the utility of agents. This article examines whether this analysis provides support for the consensus assignment, where monetary...

In this article we consider two arguments suggesting that monetary authorities in an open economy should target output price inflation and not consumer price inflation. The first suggests that output price inflation corresponds to the distortions caused by price rigidity. The second shows how...

The view held by Keynes that there was a speculative appreciation of sterling prior to its return to the gold standard, has been challenged by Gregor Smith and Todd Smith, who argue that expectations of return must have weakened the currency. The authors demonstrate that the positive but...

This paper considers a number of policy measures that may be used to preserve a fixed exchange rate. These are analyzed in a model where a switch of exchange-rate regime is triggered by an optimizing policymaker in response to extreme economic conditions. It is shown how a number of policy...

In the first decade of its existence, the European Monetary System passed through three phases of realignments: full accommodation, partial accommodation, and zero accommodation of inflation differentials. But to what extent does the new freedom of capital movements rule out such gradual...

Many recent papers suggest that the basic flex-price target zone model does not perform well empirically. This paper investigates the testable implications of a sticky-price target zone model and finds that, to a limited extent, it has a better empirical performance than the simplest flex-price...