This paper proposes a probabilistic approach to public debt sustainability analysis (DSA) using fan charts. These depict the magnitude of risks upside and downside surrounding public debt projections as a result of uncertain economic conditions and policies. We propose a simulation algorithm for...

It is widely argued that Europe's unified monetary policy calls for international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which...

The paper revisits the empirical link between fiscal policy and macroeconomic stability. Our basic presumption is that by definition, the operation of automatic stabilizers should always and everywhere contribute to greater macroeconomic stability (output and consumption). However, two stylized...

We develop a model in which governments' financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power. From a social welfare perspective, this results in undue pressure on the central bank to extract seigniorage....

The paper proposes a theoretical analysis illustrating some key policy trade-offs involved in the implementation of a rules-based fiscal framework reminiscent of the Stability and Growth Pact (SGP). The analysis offers some insights on the current debate about the SGP. Specifically, greater...

This paper draws on recent events in the euro area to discuss the serious gaps in the fiscal architecture of the European Economic and Monetary Union. These gaps stem from the lack of a fiscal federation and the incapacity of EU institutions to effectively enforce the set of rules supposed to...

We develop a multicountry model in which governments aim at excessive spending in order to serve the narrow interests of the group in power. This puts pressure on the monetary authorities to extract seigniorage, and thus affects the incentives countries would have to participate in a monetary...

We study the desirability of reforming fiscal institutions along with the delegation of monetary policy to an independent central bank. The model provides a rationale for discipline-enhancing fiscal institutions and highlights some of their desirable features. Three main results emerge. First,...

It is widely argued that Europe's unified monetary policy calls for the international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which...

The paper explores the extent to which the pressure of debt service on other spending items may push governments to embark on fiscal consolidation beyond what is strictly necessary to secure solvency. The empirical analysis identifies thresholds of interest bill indicators beyond which...