We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky and the only available sources of government revenue are distorting taxes. Our linear-quadratic approach allows us to nest both conventional analyses of optimal...

We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky and the only available sources of government revenue are distorting taxes. Our linear-quadratic approach allows us to nest both conventional analyses of optimal...

Contents: Preface -- Part I: Imperfect information, responses to shocks, and credibility issues -- 1. Introduction, Part 1 -- 2. A basic model and some early results -- 3. The strategy of monetary policy: Targets, instruments and information variables -- 4. A variable price level, supply shocks...

I study optimal monetary policy in a simple New Keynesian model with portfolio adjustment costs. Purchases of long-term debt by the central bank (quantitative easing; ‘QE') alter the average portfolio return and hence influence aggregate demand and inflation. The central bank chooses the...

Monetary policy reaction functions are compared in a simple optimizing model with one-period nominal stickiness, i.i.d. shocks, and no capital accumulation. The interest rate is the instrument and is either kept constant, "interest rate targeting" for short, or used in targeting one of the...

We construct an optimizing-agent model of a closed economy which is simple enough that we can use it to make exact utility calculations. There is a stabilization problem because there are one-period nominal contracts for wages, or prices, or both and shocks that are unknown at the time when...

In the present work we investigate how the state of credit markets non-linearly affects the impact of fiscal policies. We estimate a Threshold Vector Autoregression (TVAR) model on U.S quarterly data for the period 1984-2010. We employ the spread between BAA-rated corporate bond yield and...

This paper presents a dynamic factor model in which the extracted factors and shocks are given a clear economic interpretation. The economic interpretation of the factors is obtained by means of a set of over-identifying loading restrictions, while the structural shocks are estimated following...