Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation
AbstractWhen the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levels.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 44 (2012)
Issue (Month): 7 (October)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- Giorgio Motta & Patrizio Tirelli, 2011. "Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation," Working Papers 204, University of Milano-Bicocca, Department of Economics, revised Mar 2011.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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