This paper studies the interactions of fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both...

This paper studies the interactions of fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both...

This paper studies the interactions of fiscal policy and monetary policy when they stabilize a single economy against shocks in a dynamic setting. If both policy-makers are benevolent, then, in our model, the best outcome is achieved when monetary policy does nearly all of the stabilization. If...

This paper studies the interactions of fiscal policy and monetary policy when they stabilize a single economy against shocks in a dynamic setting. If both policy-makers are benevolent, then, in our model, the best outcome is achieved when monetary policy does nearly all of the stabilization. If...

We analyse optimal discretionary games between a benevolent central bank and a myopic government in a New Keynesian model. First, when lump-sum taxes are available and public debt is absent, we show that a Nash game results in too much government spending and excessively high interest rates,...

We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This...