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...

We examine fiscal and monetary policy interactions by developing a two-country open-economy model under flexible exchange rates, where overlapping generations of consumers supply labour to imperfectly competitive firms that change their prices infrequently. We show in this context that the...

Taylor rules, which link short-term interest rates to fluctuations in inflation and output, have been shown to be a good guide (both positively and normatively) to the conduct of monetary policy. As a result they have been used extensively to model policy in the context of both closed and open...

In their empirical analysis of Real Business Cycle models for the UK, Holland and Scott (1998) find that they cannot reject the proposition that movements in output are largely determined by 'productivity shocks' which are independent of demand side variables, such as interest rates. In this...

The Fiscal Stability Pact for EMU suggests that constraints on fiscal policy are thought by policy makers to be necessary to ensure that the independent European central bank can control inflation. In this paper we examine the interrelationship between monetary and fiscal policy when both follow...

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro...