We develop a simple model for studying the impact of monetary and fiscal policies on aggregate demand, at the business cycle frequencies. We focus on two questions principally. First, what are the key properties of the joint optimal simple rules governing the conduct of the systematic components...

Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation-output space, we identify the key stochastic influences on inflation without...

In a New Keynesian macroeconomic model under credible commitment, price level targeting dominates inflation targeting. But with sufficient inflation aversion the inflation targeting central bank can produce quantitatively similar results to one targeting the price level. The current degree of...