The objective of this study is to verify the dynamics between fiscal policy, measured by public debt, and monetary policy, measured by a reaction function of a central bank. Changes in monetary policies due to deviations from their targets always generate fiscal impacts. We examine two policy reaction functions: the first related to inflation targets and the second related to economic growth ta...

A simple model of monetary/labor search is constructed to exposit and evaluate Keynesian ideas. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. With either fixed nominal wages and prices, or indeterminacy in rates of exchange, the optimal policies we explore seem ...

This paper investigates the efficiency of monetary and fiscal policy in a twocountry general equilibrium model with monopolistic competition and wage stickiness. When monopoly distortions are completely eliminated, we find that under some conditions, stochastic government spending can affect the efficiency of global monetary policy rules that replicate the real allocations under flexible wages....

3 DIW Economic Bulletin 1.2013 With the crisis in the euro area, the issue of the institutional structure of the monetary union has gained in significance. One problem with regard to the longer-term stability of the euro area is the absence of mechanisms to adequately absorb asymmetric cyclical shocks in the individual member states. Such an instrument is essential in order to be able to implem...