In this paper we present two examples where the presence of inflation persistence could influence the qualitative nature of monetary policy. In the first case the desirability of a monetary policy regime comes under question when extensive inflation persistence exists. In the second case the...

This paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in inflation, and examine non-cooperative interactions of fiscal and monetary...

This paper investigates the importance of fiscal policy in providing macroeconomic stabilisation in a monetary union. We use a microfounded New Keynesian model of a monetary union which incorporates persistence in inflation and non-Ricardian consumers, and derive optimal simple rules for fiscal...

This paper investigates stability in a small open economy under fixed exchange rates when a proportion of consumers are credit constrained, and there exists some degree of inflation inertia. We show that the combination of these two elements may generate significant cyclical behaviour, and that...

Following from Woodford's derivation of a benevolent monetary policy maker's objective function from agents utility, a number of papers have suggested that policy in an open economy should have the same objectives as in a closed economy, and in particular that the exchange rate should play no...

We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is determined optimally, rather than following a simple rule. We look at the extent to which different degrees of fiscal feedback enhances or detracts from the...