Monetary and Fiscal Policy in an Open Economy: a Welfare-based Approach

Advisor: Tiago Couto Berriel

Co-advisor: Yvan Becard

In this paper, we present a New Keynesian two-country Open Economy model featuring consumption home bias, distortionary taxation and stochastic government debt. Within this modeling we compare, in a welfare-based sense, different fiscal and monetary rules with a benchmark constituted by a cooperative Ramsey-policy equilibrium. Additionally, we perform a comparative statics among the policy prescriptions by varying the degree of integration of the two economies, i.e., the consumption home bias parameter