This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Andreas Schabert (University of Amsterdam)

Additional information is available for the following registered author(s):

Abstract

This paper examines the role of the monetary instrument choice for local equilibrium determinacy under sticky prices and different fiscal policy regimes. Corresponding to Benhabib et al.'s (2001) results for interest rate feedback rules, the money growth rate should not rise by more than one for one with inflation when the primary surplus is raised with public debt. Under an exogenous primary surplus, money supply should be accommodating -- such that real balances grow with inflation -- to ensure local equilibrium determinacy. When the central bank links the supply of money to government bonds by controlling the bond-to-money ratio, an inflation stabilizing policy can be implemented for both fiscal policy regimes. Local determinacy is then ensured when the bond-to-money ratio is not extremely sensitive to inflation, or when interest payments on public debt are entirely tax financed, i.e., the budget is balanced. (Copyright: Elsevier)

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dx.doi.org/10.1016/j.red.2006.08.001
File Format:
File Function:
Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 9 (2006)
Issue (Month): 4 (October)
Pages: 742-762
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:red:issued:04-2

Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Fax: 1-860-486-4463
Email:
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC

Order Information:
Email:
Web: http://www.EconomicDynamics.org/RED17.htm

For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).

Related research
Keywords: Fiscal-monetary policy interaction; Money growth; Bond-to-money ratio; Local equilibrium determinacy;

Other versions of this item:

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Schreft, Stacey L & Smith, Bruce D, 1998. "The Effects of Open Market Operations in a Model of Intermediation and Growth," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 519-50, July. [Downloadable!] (restricted)
    Other versions:
  2. Kaas, Leo & Weinrich, Gerd, 2000. "Money and Growth in a Production Economy with Multiple Assets," Economics Series 86, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  3. Collard, Fabrice & Dellas, Harris, 2005. "Poole in the New Keynesian model," European Economic Review, Elsevier, vol. 49(4), pages 887-907, May. [Downloadable!] (restricted)
    Other versions:
  4. Stacey L. Schreft & Bruce D. Smith, 1999. "The evolution of cash transactions : some implications for monetary policy," Research Working Paper 99-02, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  5. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
  6. Black, Fischer, 1974. "Uniqueness of the price level in monetary growth models with rational expectations," Journal of Economic Theory, Elsevier, vol. 7(1), pages 53-65, January. [Downloadable!] (restricted)
  7. Charles T. Carlstrom & Timothy S. Fuerst, 2003. "Money Growth Rules and Price Level Determinacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 263-275, April. [Downloadable!] (restricted)
    Other versions:
  8. Bruce D. Smith, 1984. "Money and inflation in colonial Massachusetts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win. [Downloadable!]
  9. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    Other versions:
  10. Carlstrom, Charles T. & Fuerst, Timothy S., 2005. "Investment and interest rate policy: a discrete time analysis," Journal of Economic Theory, Elsevier, vol. 123(1), pages 4-20, July. [Downloadable!] (restricted)
    Other versions:
  11. Charles T. Carlstrom & Timothy S. Fuerst, 1995. "Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy," Working Paper 9504, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  12. Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001. "The Perils of Taylor Rules," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 40-69, January. [Downloadable!] (restricted)
    Other versions:
  13. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February. [Downloadable!] (restricted)
  14. Andreas Schabert, 2005. "Money supply and the implementation of interest rate targets," Working Paper Series 483, European Central Bank. [Downloadable!]
    Other versions:
  15. Sargent, Thomas J & Smith, Bruce D, 1987. "Irrelevance of Open Market Operations in Some Economies with Government Currency Being Dominated in Rate of Return," American Economic Review, American Economic Association, vol. 77(1), pages 78-92, March. [Downloadable!] (restricted)
  16. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May. [Downloadable!] (restricted)
  17. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 285-298, April. [Downloadable!] (restricted)
    Other versions:
  18. Bhattacharya, Joydeep & Kudoh, N, 2002. "Tight Money Policies and Inflation Revisited," Staff General Research Papers 5085, Iowa State University, Department of Economics.
    Other versions:
  19. Matsuyama, Kiminori, 1990. "Sunspot equilibria (rational bubbles) in a model of money-in-the-utility-function," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 137-144, January. [Downloadable!] (restricted)
  20. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Monetary Policy and Multiple Equilibria," American Economic Review, American Economic Association, vol. 91(1), pages 167-186, March. [Downloadable!] (restricted)
    Other versions:
  21. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  22. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Avoiding Liquidity Traps," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 535-563, June. [Downloadable!] (restricted)
    Other versions:
  23. Michael Woodford, 1995. "Price Level Determinacy Without Control of a Monetary Aggregate," NBER Working Papers 5204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  24. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  25. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  26. Lawrence J. Christiano & Terry J. Fitzgerald, 2000. "Understanding the Fiscal Theory of the Price Level," NBER Working Papers 7668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  27. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, vol. 110(462), pages C93-108, March. [Downloadable!] (restricted)
  28. Bruckner, Matthias & Schabert, Andreas, 2003. "Supply-side effects of monetary policy and equilibrium multiplicity," Economics Letters, Elsevier, vol. 79(2), pages 205-211, May. [Downloadable!] (restricted)
  29. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  30. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December. [Downloadable!] (restricted)
    Other versions:
  31. De Fiore, Fiorella & Liu, Zheng, 2005. "Does trade openness matter for aggregate instability?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1165-1192, July. [Downloadable!] (restricted)
  32. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May. [Downloadable!] (restricted)
  33. Kenneth J. Matheny, 1998. "Non-neutral responses to money supply shocks when consumption and leisure are Pareto substitutes," Economic Theory, Springer, vol. 11(2), pages 379-402. [Downloadable!] (restricted)
  34. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  35. Narayana Kocherlakota & Christopher Phelan, 1999. "Explaining the fiscal theory of the price level," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 14-23. [Downloadable!]
  36. Neil Wallace, 1984. "Some of the choices for monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win. [Downloadable!]
  37. Schmitt-Grohe, Stephanie & Uribe, Martin, 2000. "Price level determinacy and monetary policy under a balanced-budget requirement," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 211-246, February. [Downloadable!] (restricted)
    Other versions:
  38. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  39. William T. Gavin & Benjamin D. Keen & Michael R. Pakko, 2005. "The monetary instrument matters," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 633-658. [Downloadable!]
    Other versions:
  40. Dirk Niepelt, 2004. "The Fiscal Myth of the Price Level," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 276-299, February. [Downloadable!] (restricted)
    Other versions:
  41. repec:cup:macdyn:v:7:y:2003:i:5:p:670-90 is not listed on IDEAS
  42. Meng, Qinglai, 2002. "Monetary policy and multiple equilibria in a cash-in-advance economy," Economics Letters, Elsevier, vol. 74(2), pages 165-170, January. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ibrahim Chowdhury & Andreas Schabert, 2008. "Federal Reserve Policy viewed through a Money Supply Loss," Tinbergen Institute Discussion Papers 08-023/2, Tinbergen Institute. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by encouraging others to use our services.

This page was last updated on 2009-11-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.