On the joint determination of fiscal and monetary policy

► Determination of fiscal and monetary policy absent commitment. ► Intertemporal distortion smoothing interacts with a time-consistency problem. ► Money micro-foundations refine our understanding of policy trade-offs. ► Long-run policy is time-consistent, featuring intra- and inter-temporal distortions. ► The welfare loss due to lack of commitment is small for any initial level of debt.