The Fiscal Stability Pact for EMU implies that constraints on fiscal policy facilitate inflation control. In this paper we identify two stable policy regimes. When monetary policy seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to ensure model stability. A fiscal policy which does not, by itself, ensure fiscal solvency constrains monetary policy to be relatively "passive". However, in simulations we conclude that the central ban...Expand abstract
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Interactions between Monetary and Fiscal Policy Rules.
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