This paper analyzes optimal monetary and fiscal policy rules in a real business cycle model with sticky prices, a demand for money, taxation, and stochastic government consumption. The authors consider simple policy rules where the nominal interest rate is set as a function of output and inflation, and taxes are set as a function of total government liabilities. They require policy to be implementable, ensuring uniqueness of the rational expectations equilibrium. The study avoids empirically unrealistic assumptions typically used in related literature, instead using a second-order accurate solution to the model. Key findings include: the size of the inflation coefficient in the interest-rate rule has a minor role in welfare, as it mainly affects equilibrium determinacy. Optimal monetary policy features a muted response to output, and interest rate rules with a positive response to output can lead to significant welfare losses. The optimal fiscal policy is passive, but welfare losses from active fiscal policy are negligible. The paper also highlights the importance of considering realistic assumptions, such as capital accumulation, active fiscal policy, and non-negligible demand for money. It shows that the design of optimal monetary policy depends on the underlying fiscal regime. The study uses a calibrated model to analyze optimal policy in a world with no subsidies to undo distortions from imperfect competition, capital accumulation, and non-negligible demand for money. The results suggest that optimal monetary policy should be active to ensure equilibrium uniqueness, while fiscal policy should be passive. The paper concludes that the conclusions of existing literature on optimal monetary policy are robust under more realistic specifications of the economic environment.This paper analyzes optimal monetary and fiscal policy rules in a real business cycle model with sticky prices, a demand for money, taxation, and stochastic government consumption. The authors consider simple policy rules where the nominal interest rate is set as a function of output and inflation, and taxes are set as a function of total government liabilities. They require policy to be implementable, ensuring uniqueness of the rational expectations equilibrium. The study avoids empirically unrealistic assumptions typically used in related literature, instead using a second-order accurate solution to the model. Key findings include: the size of the inflation coefficient in the interest-rate rule has a minor role in welfare, as it mainly affects equilibrium determinacy. Optimal monetary policy features a muted response to output, and interest rate rules with a positive response to output can lead to significant welfare losses. The optimal fiscal policy is passive, but welfare losses from active fiscal policy are negligible. The paper also highlights the importance of considering realistic assumptions, such as capital accumulation, active fiscal policy, and non-negligible demand for money. It shows that the design of optimal monetary policy depends on the underlying fiscal regime. The study uses a calibrated model to analyze optimal policy in a world with no subsidies to undo distortions from imperfect competition, capital accumulation, and non-negligible demand for money. The results suggest that optimal monetary policy should be active to ensure equilibrium uniqueness, while fiscal policy should be passive. The paper concludes that the conclusions of existing literature on optimal monetary policy are robust under more realistic specifications of the economic environment.