We study simple fiscal rules for stabilizing the government debt level in response to asymmetric demand shocks in a country that belongs to a currency union. We compare debt stabilization through tax rate adjustments with debt stabilization through expenditure changes. While rapid and flexible...

I study how the zero bound on nominal interest rates affects optimal discretionary monetary policy within the standard New Keynesian framework. I find that the non-negativity constraint implies an optimal policy which is more expansionary and more aggressive near the zero bound compared to the...

We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, when the steady state natural rate (r*) becomes permanently negative. We show that the optimal policy aims to approach gradually a new steady state with positive...