We study the consequences of non-neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky. Assuming transaction services of government bonds, Ricardian equivalence fails because public debt has a negative impact on its marginal rate of return...

In locally linearized dynamic stochastic rational-expectations models, I introduce the concepts of feasible paths (paths on which the policy instrument can be expressed as a function of the policymaker's observation set) and implementable paths (paths that can be obtained, in a minimally robust...

A non-linear macrodynamic model is presented here to study possible stabilization policies in a financially unstable economy. Three policy rules will be considered, namely the interest rate rule (also called Taylor rule), the money supply rule and the fiscal policy rule. It will be shown that...

This paper shows that monetary policy should be delegated to a central bank that cross-checks optimal policy with information from the Taylor rule. Attaching some weight to deviations of the interest rate from the interest rate prescribed by the Taylor rule is beneficial if the central bank aims...