We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This...

Empirically, the cyclical pattern of fiscal policy differs between developed and developing countries, with in particular much greater pro-cyclicality and volatility of public investment in developing countries. In this paper I provide a theoretical explanation for the observed differences by...

We present a crisis model which illustrates how oil price shocks led to the resulting collapse of the fixed exchange rate system in Russia. We discuss crucial weaknesses of the Russian economy and argue that the reason it was particularly vulnerable to shocks was that the government and the...