Extending Gali and Monacelli (2004), we build an N-country open economy model, where each economy is subject to sticky wages and prices and, potentially, has access to sales and income taxes as well as government spending as fiscal instruments. We examine an economy either as a small open...

In this paper we analyse counter-cyclical fiscal policy within the context of a microfounded analysis of business-cycle stabilization. We show that tax and spending instruments can have a useful counter-cyclical role, even after allowing for the distortionary nature of the instruments and the...

The Fiscal Stability Pact for EMU implies that constraints on fiscal policy facilitate inflation control. In this paper we identify two stable policy regimes. When monetary policy seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to...

The last few years papers have begun to analyse optimal monetary and fiscal policy in models incorporating nominal rigidities where social welfare is derived from the utility of agents. This paper examines whether this analysis provides support for the consensus assignment, where monetary policy...

This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption,...