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When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to inflate. We conclude that in the New Keynesian model, the zero bound on nominal interest rates is not a relevant constraint on both fiscal and monetary policy.

This paper shows that state contingent debt can be syntethically constructed using non-contingent debt of di¤erent maturities. A main policy implication of this principle is that the Ramsey allocation with complete markets can be sustained with non-contingent debt only by properly managing its maturity structure. The numerical experiments, however, suggest that this policy implication ought to be taken with care. We …nd that the debt positions that sustain the Ramsey allocation are very high (on the order of a few hundred times total GDP for a very simple four state economy) and increasing in the number of states. In addition, they are very sensitive to small variations in the parameters of the model.

This paper uses a model of boundedly rational learning to account for the observations of recurrent hyperin°ations in the last decade. We study a standard monetary model where the fully rational expectations assumption is replaced by a formal de¯nition of quasi-rational learning. The model under learning is able to match remarkably well some crucial stylized facts observed during the recurrent hyperin°a-tions experienced by several countries in the 80's. We argue that, despite being a small departure from rational expectations, quasirational learning does not preclude falsi¯ability of the model, it does not violate reasonable rationality requirements and it can be used for policy evaluation.