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On (Sub)Optimal Monetary Policy Rules under Untied Fiscal Hands

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  • Zagaglia Paolo

Abstract

We examine the interplay between monetary and fiscal policies in a context where disturbances to the public deficit process are a primary source of macroeconomic instability. We perform simulations of optimal targeting rules on a sticky-price model "à la" Woodford (1997). Our investigation compares the dynamic adjustment path under inflation targeting with that arising from nominal income growth targeting. When fiscal shocks enter the picture, inflation targeting is a superior strategy. In opposition to Jensen (2002)'s results, we show that an inflation targeter is capable of bringing about the required degree of interest rate inertia. This does not occur at the cost of additional nominal instability.

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Bibliographic Info

Article provided by Società editrice il Mulino in its journal Rivista italiana degli economisti.

Volume (Year): (2002)
Issue (Month): 2 ()
Pages: 219-248

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Handle: RePEc:mul:jqat1f:doi:10.1427/8533:y:2002:i:2:p:219-248

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Cited by:
  1. Marcello MESSORI & Alberto ZAZZARO, 2004. "Monetary profits within the circuit: Ponzi finance oer "mors tua, vita mea"?," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 200, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. Roberto ESPOSTI & Pierpaolo PIERANI, 2005. "Price, Private Demand and Optimal Provision of Public R&D in Italian Agriculture," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 238, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  3. Ugo Fratesi, 2003. "Innovation Diffusion and the Evolution of Regional Disparities," ERSA conference papers ersa03p327, European Regional Science Association.
  4. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trescroci, 2003. "Fiscal and Monetary policy Interactions in a New Keynesian Model with Liquidity Constraints," Working Papers, Business School - Economics, University of Glasgow 2005_19, Business School - Economics, University of Glasgow, revised Apr 2005.
  5. Renato BALDUCCI, 2005. "Public Expenditure and Economic Growth. A critical extension of Barro's (1990) model," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 240, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  6. Stefania BUSSOLETTI & Roberto ESPOSTI, 2004. "Regional Convergence, Structural Funds and the Role of Agricolture in the EU. A Panel-Data Approach," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 220, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  7. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2003. "Fiscal and Monetary Policy Interactions: Empirical Evidence and Optimal Policy Using a Structural New Keynesian Model," CESifo Working Paper Series, CESifo Group Munich 1060, CESifo Group Munich.
  8. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. "Can Fiscal Policy Help Macroeconomic Stabilisation? Evidence from a New Keynesian Model with Liquidity Constraints," CESifo Working Paper Series, CESifo Group Munich 1171, CESifo Group Munich.
  9. Nicola MATTEUCCI & Alessandro STERLACCHINI, 2003. "ICT and Employment Growth in Italian Industries," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 193, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  10. Elvio MATTIOLI, 2003. "The measurement of coherence in the evaluation of criteria and its effects or ranking problems illustrated using a multicriteria decision method," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 199, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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