We document an empirical puzzle for EMS exchange rates during a period in which the bands on these exchanges rates were (almost) credible, i.e. exchange rate distributions are humpshaped rather than U-shaped as predicted by the standard target zone model. We offer an explanation of this puzzle...

The trade-off between inflation and taxation is analysed in a model with heterogeneity in nominal debt holdings. This creates a political conflict among the electorate. As a bench-mark we study a quot;completely representativequot; democracy, where more inequality leads to higher equilibrium...

This comment extends Calvo's (1988) analysis of the relation between expectations and the number of repudiation equilibria in public debt management, in order to analyse the effects of heterogeneity in (nominal) debt holdings. It is shown that the number of equilibria depends on the relative...

Macroeconomic stabilisation and foreign exchange market interventions are inves-tigated within the context of a stochastic small open economy. With money demand shocks a peg is optimal, but with goods demand shocks a nominal income target is best. With supply shocks the optimal degree of...

A democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people. It is in the interests of the clientele of the resulting governments to attempt to levy inflation taxes in order to erode the real value of debt...

It is widely argued that Europe`s unified monetary policy calls for international coordination at the fiscal level. We survey the issues involved in such coordination in the perspective of macroeconomic stabilization. A simple model identifies the circumstances under which coordination may be...

This article explores how the Stability and Growth Pact (SGP) may cope with the future costs of population ageing in the European Union. Clearly, population ageing has forced countries to reform their pension systems, and will continue to do so, both by reducing the generosity of pension...

The objective of this paper is to analyze the welfare effects of raising the retirement age. With aging populations, in many countries de iure retirement age has been raised. With a standard assumption that individuals prefer leisure to work, such policy necessitates some welfare deterioration....

Has the crisis indeed demonstrated that as profession we are misled by the beauty of the mathematical models and the only useful, workable solutions at hand were provided in early 1930s? The objective of this paper is to provide a review of the current state-of-the-art literature from the...

In many countries the fiscal tension associated with the global financial crisis brings about the discussion about unprivatizing the social security system. This paper employs an OLG model to assess ex ante the effects of such changes to the pension reform in Poland from 1999 as implemented in...