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Dynamic monetary–fiscal interactions and the role of monetary conservatism

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  • Niemann, Stefan

Abstract

Assuming that macroeconomic policies are directed by distinct monetary and fiscal policy makers who cannot commit to future actions, we reassess the implications of monetary conservatism and fiscal impatience in a setting with nominal government debt. For environments where a non-negative steady state level of government debt (assets) emerges in the absence of conservatism and impatience, monetary conservatism induces accumulation of a higher stock of liabilities (assets) and has adverse (positive) welfare implications. This result obtains irrespectively of the degree of fiscal impatience and questions the unambiguous desirability of monetary conservatism traditionally found in the literature.

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Bibliographic Info

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

Volume (Year): 58 (2011)
Issue (Month): 3 ()
Pages: 234-247

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Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:234-247

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

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  1. Salvador Ortigueira & Joana Pereira, 2007. "Markov-Perfect Optimal Fiscal Policy: The Case of Unbalanced Budgets," Economics Working Papers ECO2007/41, European University Institute.
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Citations

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Cited by:
  1. Fernando Martin, 2012. "Debt, Inflation and Central Bank Independence," 2012 Meeting Papers 1019, Society for Economic Dynamics.
  2. Adam, Klaus & Billi, Roberto M, 2010. "Distortionary fiscal policy and monetary policy goals," CEPR Discussion Papers 7741, C.E.P.R. Discussion Papers.
  3. Fernando M. Martin, 2011. "Government policy in monetary economies," Working Papers 2011-026, Federal Reserve Bank of St. Louis.
  4. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2009. "Inflation dynamics under optimal discretionary fiscal and monetary policies," Economics Discussion Papers 681, University of Essex, Department of Economics.
  5. Stefan Niemann & Paul Pichler & Gerhard Sorger, 2010. "Central bank independence and the monetary instrument problem," Economics Discussion Papers 687, University of Essex, Department of Economics.
  6. Niemann, Stefan & Pichler, Paul & Sorger, Gerhard, 2013. "Public debt, discretionary policy, and inflation persistence," Journal of Economic Dynamics and Control, Elsevier, vol. 37(6), pages 1097-1109.
  7. Niemann, Stefan & Pichler, Paul, 2011. "Optimal fiscal and monetary policies in the face of rare disasters," European Economic Review, Elsevier, vol. 55(1), pages 75-92, January.

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