Optimal monetary–fiscal policy in the euro area liquidity crisis
Central Bank of Ireland
New Keynesian DSGE model with liquidity shock in sovereign bonds market, cash-in-advance constraint where money and fraction of government bonds are accepted for purchases, zero lower bound on interest rates, and consolidated government-central
monopolistic competition, Calvo pricing with indexation to inflation target
Figure 2 p.9
Optimal monetary-fiscal policy (OMFP) with full commitment; inflation target set to zero in baseline calibration
Baseline calibration with inflation target Pi=1 (zero inflation) as stated in Table 1 and Section 3