The article explores if EU independent fiscal institutions (IFIs) are in a position to exercise effective scrutiny of national fiscal policies. It identifies substantial heterogeneity across IFIs in resources which is not matched by a similar diversity in mandates. In addition to financial and human resources, better access to information, effective comply‐or‐explain mechanisms and closer links with legislatures could enhance fiscal surveillance and accountability in the EU. The paper provides rankings of individual IFIs constructed based on measures that aggregate these pre‐conditions for effective fiscal scrutiny.

I am indebted to two anonymous referees for their detailed comments and invaluable suggestions. I should also like to thank the Centre for Dynamic Macroeconomic Analysis at the University of St Andrews for generous research funding.

The paper re-visits the literature on real rigidities in New Keynesian models in the context of an economy at the zero lower bound. It identi…es strategic interaction among price-and wage-setting agents in the economy as an important determinant of both optimal policy and economic dynamics in deep recessions. In particular, labour market segmentation is shown to have a signi…cant in ‡uence on the length of the forward commitment to keep interest rates at zero, the magnitude of the …scal policy responses as well as in ‡ation volatility in the economy under optimal policy. JEL Classi…cation: E31, E32, E52, E61, E62.

, where earlier versions of this paper were presented. I am indebted to two anonymous referees for their detailed comments and the suggestion to focus the analysis on the question of the effects of government spending on consumption. I should also like to thank the Centre for Dynamic Macroeconomic Analysis at the University of St Andrews for generous research funding.

We compare alternative optimal public debt adjustment strategies in a New Keynesian economy. We find that the un conditionally optimal policy is consistent with a gradual adjustment in public debt towards its mean value at a speed determined by the rate of time preference of agents. To a second-order approximation in a stochastic setting, debt follows a unit root pro cess with a negative drift under the 'timeless-perspective' approach but converges to an unconditional mean different from the non-stochastic steady state in the unconditionally optimal economy. Overall, increases in public debt are shown to be optimally reduced by half only after approximately two decades at best.