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Working Paper
Asymmetric shocks in a currency union with monetary and fiscal handcuffs?
Erceg, Christopher J.; Lindé, Jesper (2010)
This paper investigates the impact of the asymmetric shocks within a currency union in a framework that takes account of the zero bound constraint on policy rates, and also allows for constraints on fiscal policy. In this environment, we document that the usual optimal currency argument showing that the effects of shocks are mitigated to the extent that they are common across member states can be reversed. Countries can be worse off when their neighbors experience similar shocks, including policy-driven reductions in government spending.
International Finance Discussion Papers , Paper 1012

Working Paper
The role of fiscal policy in an incomplete markets framework
Thomas, Charles P. (1993)
A general-equilibrium model is developed to highlight the link between neo-Keynesian models of unemployment and recent results on the constrained suboptimality of competitive economies with incomplete asset markets. Although the model deviates from the Arrow-Debreu paradigm only by the absence of some contingent claims, the competitive equilibrium exhibits underemployment and balanced-budget fiscal policies have Keynesian effects which are Pareto improving.
International Finance Discussion Papers , Paper 451

Working Paper
The time consistency of monetary and fiscal policies
Neumeyer, Pablo Andrés; Kehoe, Patrick J.; Alvarez, Fernando (2002)
Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)
Working Papers , Paper 616

Working Paper
Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength
Faccini, Renato; Melosi, Leonardo; Bianchi, Francesco (2020-05-11)
The Covid-19 pandemic found policymakers facing constraints on their ability to react to an exceptionally large negative shock. The current low interest rate environment limits the tools the central bank can use to stabilize the economy, while the large public debt curtails the efficacy of fiscal interventions by inducing expectations of costly fiscal adjustments. Against this background, we study the implications of a coordinated fiscal and monetary strategy aimed at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under this coordinated strategy, the fiscal ...
Working Paper Series , Paper WP 2020-13

Working Paper
Fiscal Stimulus and Firms: A Tale of Two Recessions
Dobridge, Christine L. (2016-02-22)
In this paper, I examine the effects of a countercyclical fiscal policy that gave firms additional tax refunds--additional liquidity--at the end of the past two recessions. I take advantage of a discontinuity in the slope of the tax refund formula to estimate the policy's impact. I find that after passage of the policy in 2002, firms allocated $0.40 of every tax refund dollar to investment. After passage of the policy in 2009, in contrast, firms used the refunds to increase cash holdings ($0.96 of every refund dollar) before paying down debt in the following year. I provide evidence that ...
Finance and Economics Discussion Series , Paper 2016-13

Working Paper
Monetary Policy and the Great COVID-19 Price Level Shock
Andolfatto, David; Martin, Fernando M. (2025-07-28)
We employ a small-scale dynamic general equilibrium model to analyze the surge in inflation following the COVID-19 pandemic. A calibrated version of the model is used to assess U.S. monetary and fiscal policy over the 2020–2024 period and to estimate the economic and welfare consequences of alternative policy scenarios. The analysis suggests that the large fiscal transfers of 2020–2021 were broadly welfare-improving, albeit larger than necessary. Given the fiscal stance in place, optimal monetary policy would not have generated a materially different price level dynamic. While monetary ...
Working Papers , Paper 2025-004

Working Paper
The Implications of Labor Market Heterogeneity for Unemployment Insurance Design
Birinci, Serdar; See, Kurt (2026-01-23)
We estimate unemployment insurance (UI) eligibility, take-up, and replacement rates at the individual level and document how they vary with earnings, wealth, and unemployment duration. We extend a widely used framework that combines an incomplete-markets model with a frictional labor market to match our findings. We show that the optimal UI policy becomes substantially more generous. The gap between optimal policies in the two models is largely driven by endogenous UI take-up, which entails a utility cost: only those who value UI the most choose to take it. The welfare gains from insuring ...
Working Papers , Paper 2024-026

Working Paper
Spousal Labor Supply Response to Job Displacement and Implications for Optimal Transfers
Birinci, Serdar (2024-01)
I document a small spousal earnings response to the job displacement of the family head. The response is even smaller in recessions, when earnings losses are larger and additional insurance is valuable. Using cross-state differences in transfer generosity, I find that generous transfers substantially crowd out the spousal earnings response. To study its policy implications, I develop an incomplete markets model with family labor supply and aggregate fluctuations, where predicted labor supply elasticities to taxes and transfers are in line with empirical estimates both in aggregate and across ...
Working Papers , Paper 2019-020

Conference Paper
Some welfare costs of monetary and fiscal policy
Cooley, Thomas F.; Hansen, Gary D. (1989)
Proceedings

Journal Article
The near-term outlook for fiscal policy
Penner, Rudolph G. (2000-04)
Economic Policy Review , Issue Apr , Pages 77-80

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