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On the joint determination of fiscal and monetary policy

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  • Martin, Fernando M.

Abstract

The conduct of fiscal and monetary policy absent commitment depends on the interaction between the objective of smoothing distortions intertemporally and a time-consistency problem. When net nominal government obligations are positive, both fiscal and monetary policies are distortionary and the choice of debt depends on how the anticipated response in future monetary policy affects the current demand for money and bonds. There exists a unique steady state with positive net nominal government obligations, which is stable and time-consistent. For any initial level of debt, the welfare loss due to lack of commitment is small.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 2 (March)
Pages: 132-145

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Handle: RePEc:eee:moneco:v:58:y:2011:i:2:p:132-145

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Web page: http://www.elsevier.com/locate/inca/505566

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Citations

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Cited by:
  1. Fernando M. Martin, 2011. "Policy and welfare effects of within-period commitment," Working Papers 2011-031, Federal Reserve Bank of St. Louis.
  2. Fernando M. Martin, 2013. "Government Policy In Monetary Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 185-217, 02.
  3. Fernando M. Martin, 2011. "Lagos-Wright vs. Cash-in-Advance: Government Policy Response to War-Expenditure Shocks," 2011 Meeting Papers 745, Society for Economic Dynamics.
  4. Fernando M. Martin, 2013. "Debt, inflation and central bank independence," Working Papers 2013-017, Federal Reserve Bank of St. Louis.
  5. Martin Fernando M., 2012. "Government Policy Response to War-Expenditure Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-40, July.

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