  We consider a frictionless constant endowment economy based on Leeper (1991).
In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc
fiscal rule, there are two equilibria. One has active monetary policy and
passive fiscal policy, while the other has passive monetary policy and active
fiscal policy. We consider an extended setup in which the policy maker
minimizes a loss function under quasi-commitment, as in Schaumburg and
Tambalotti (2007). Under this formulation there exists a unique Ramsey
equilibrium, with an interest rate peg and a passive fiscal policy. We thank
John P. Conley, Luis de Araujo and one referree for their very helpful
comments.
