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Monetary Policy and Fiscal Rules

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  • Annicchiarico Barbara

    ()
    (University of Rome ‘Tor Vergata’)

  • Marini Giancarlo

    ()
    (University of Rome ‘Tor Vergata’)

  • Piergallini Alessandro

    ()
    (University of Rome ‘Tor Vergata’ and CeFiMS, SOAS, University of London)

Abstract

This paper presents a Dynamic New Keynesian model with wealth effects to study the performance of monetary policy under Ricardian and non-Ricardian fiscal regimes. The model is calibrated to euro area quarterly data. The interactions between fiscal policy and interest rate rules have critical implications for equilibrium uniqueness. Within the class of Ricardian fiscal rules, active monetary policies are not necessary for equilibrium determinacy. However, monetary authorities overreacting to inflation not only improve macroeconomic performance, but also generate similar outcomes under different fiscal rules. Conversely, under non-Ricardian fiscal regimes, interest rate pegs are predicted to reduce inflation variability.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 8 (2008)
Issue (Month): 1 (February)
Pages: 1-42

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Handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:4

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Citations

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Cited by:
  1. Alexander W. Richter, 2013. "The Fiscal Limit and Non-Ricardian Consumers," Auburn Economics Working Paper Series auwp2013-19, Department of Economics, Auburn University.
  2. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, . "Macroeconomic Modelling and the Effects of Policy Reforms: an Assessment for Italy using ITEM and," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.
  3. Nisticò, Salvatore, 2012. "Monetary policy and stock-price dynamics in a DSGE framework," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 126-146.
  4. Castelnuovo, Efrem & Nisticò, Salvatore, 2010. "Stock market conditions and monetary policy in a DSGE model for the U.S," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1700-1731, September.
  5. Barbara Annicchiarico & Nicola Giammaroli & Alessandro Piergallini, 2011. "Budgetary Policies in a DSGE Model with Finite Horizons," CEIS Research Paper 207, Tor Vergata University, CEIS, revised 12 Jul 2011.
  6. Araújo, Eurilton, 2008. "Robust Monetary Policy with the Consumption-Wealth Channel," Insper Working Papers wpe_110, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  7. Ashima Goyal, 2011. "Sustainable debt and deficits in Emerging Markets," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 4(2), pages 113-136.
  8. Marcela Meirelles-Aurelio, 2005. "The performance of monetary and fiscal rules in an open economy with imperfect capital mobility," Research Working Paper RWP 05-01, Federal Reserve Bank of Kansas City.
  9. Giorgio Di Giorgio & Salvatore Nistic�, . "Fiscal Deficits, Current Account Dynamics and Monetary Policy," Working Papers 8, Department of the Treasury, Ministry of the Economy and of Finance.

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