This study analyzes the effect of a money-financed policy for fiscal reform. We introduce a realistic setting in which real output is not given by an exogenous variable, but is determined by effective demand in a monetary growth model. Using this model, we compare the effects of the...

We investigate open economy dimensions of optimal monetary and fiscal policy at the zero lower bound (ZLB) in a small open economy model. At positive interest rates, the trade elasticity has negligible effects on optimal policy. In contrast, at the ZLB, the trade elasticity plays a key role in...

How should independent central banks react if pressured by fiscal policymakers? We study an environment with strategic monetary-fiscal interactions where the central bank has a limited degree of commitment to follow policies over time and the fiscal authority has none. We contrast the...

This post will explore at length (warning!) and in detail (another warning — wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability. While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical...

The euro crisis remains unresolved even as financial markets may seem calm for now. The current euro regime is inherently flawed, and recent reforms have failed to turn this dysfunctional regime into a viable one. Our investigation is informed by the “cartalist” critique of traditional...

Consider aligning the central bank's objectives closer to the preferences of society and away from those of a non-benevolent government. Although this reform would be socially beneficial and initially succeed in reducing inflation, it would fail to lower inflation permanently. The smaller...

This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any...

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies...

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies...

The combination of discretionary monetary policy, labor-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions Although an inflation target eliminates this inflation bias, it creates a...