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...

We analyze implications of inflation persistence for business cycle dynamics following terms of trade and risk-premium shocks in a small open economy, under fixed and flexible exchange rate regimes. We show that the country's adjustment paths are slow and cyclical if there is a significant...

In recent decades, investment has been lackluster despite high returns on capital, high valuations measured by Tobin’s Q, and low interest rates. In this paper, we provide an account of weak investment after the Great Recession by explaining why investment has grown decreasingly responsive to...