We analyze the interaction between committed monetary policy and discretionary fiscal policy in a model with public debt, endogenous government expenditures, distortive taxation and nominal rigidities. Fiscal decisions lack commitment but are Markovperfect. Monetary commitment to an interest...

We incorporate a participation decision in a standard New Keynesian model with matching frictions and show that treating the labor force as constant leads to incorrect evaluation of alternative policies. We also show that the presence of a participation margin mitigates the Shimer critique.

The purpose of the paper is to design optimal monetary policy rules in a New-Keynesian model featuring the presence of non-atomistic unions.It is shown that concentrated labor markets call for more aggressive inflation stabilization. This is because the central bank is able to induce wage...