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...

We study discretionary equilibria in dynamic linear-quadratic rational expectations models. In contrast to the assumptions that pervade this literature we show that these models do have multiple equilibria in some situations. We demonstrate the existence of multiple discretionary equilibria by...

Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple...

We study the existence and uniqueness properties of monetary policy with limited commitment in LQ RE models. We use a New Keynesian model with debt accumulation in the spirit of Leeper (1991) as a `lab', because this model generates multiple equilibria under pure discretion, and under full...

The overall aim of the research presented in this thesis is threefold: To empiricallyexamine monetary transmission to UK retail mortgage rates; to examine whyfixed versus variable rate mortgage lending differs across EU-15 countries; and to build a DSGE model which can be used for analysing...