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Fiscal and Monetary policy Interactions in a New Keynesian Model with Liquidity Constraints

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Author Info
V. Anton Muscatelli
Patrizio Tirelli
Carmine Trescroci

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Abstract

This paper derives a NewKeynesiandynamic general equilibrium model with liquidity constrained consumers and sticky prices. The model allows a role for both government spending and taxation in the DGE model. The mode lis then estimated using US data. We demonstrate that there seems to be a significant role for rule-of-thumb consumer behaviour. Our model is then used to analyse the interaction between Fiscal and monetary policies. We examine the extent to which fiscal policy (automatic stabilisers) assist or hinder monetary policy when the latter takes a standard forward-looking inflation targetingf orm. We also examine the extent to which inertia in fiscal policy and the presence of rule-of-thumb consumers aspects output and inflation variability in the presence of such a monetary policy rule..

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2005_19.

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Date of creation: Oct 2003
Date of revision: Apr 2005
Handle: RePEc:gla:glaewp:2005_19

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal 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

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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.:
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  2. Patrizio Tirelli & V. Anton Muscatelli & Carmine Trecroci, 2004. "The interaction of fiscal and monetary policies: some evidence using structural econometric models'," Money Macro and Finance (MMF) Research Group Conference 2003 103, Money Macro and Finance Research Group. [Downloadable!]
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  12. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2001. "Monetary and Fiscal Policy Interactions over the Cycle: Some Empirical Evidence," Working Papers 2002_13, Department of Economics, University of Glasgow, revised Oct 2002. [Downloadable!]
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  28. Mélitz, Jacques, 1997. "Some Cross-Country Evidence about Debt, Deficits and the Behaviour of Monetary and Fiscal Authorities," CEPR Discussion Papers 1653, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  33. repec:fth:harver:1435 is not listed on IDEAS
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  37. Cukierman, Alex & Muscatelli, V. Anton, 2002. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability? -- Theory and Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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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. Di Bartolomeo, Giovanni & Rossi, Lorenza, 2005. "Heterogeneous Consumers, Demand Regimes, Monetary Policy and Equilibrium Determinacy," MPRA Paper 5100, University Library of Munich, Germany, revised 08 Sep 2007. [Downloadable!]
    Other versions:
  2. Edoardo Gaffeo & Giuliana Passamani & Roberto Tamborini, 2005. "Fiscal and monetary policy, unfortunate events, and the SGP arithmetics - Evidence from a growth-gaps model," Department of Economics Working Papers 0519, Department of Economics, University of Trento, Italia. [Downloadable!]
  3. Giovanni Di Bartolomeo & Lorenza Rossi & Massimiliano Tancioni, 2007. "Monetary Policy under Rule-of-Thumb Consumers and External Habits," Money Macro and Finance (MMF) Research Group Conference 2006 1, Money Macro and Finance Research Group. [Downloadable!]
  4. Marta Areosa & Waldyr Areosa, 2006. "The Inequality Channel of Monetary Transmission," Working Papers Series 114, Central Bank of Brazil, Research Department. [Downloadable!]
  5. Matthew Canzoneri, 2007. "Coordination of Monetary and Fiscal Policy in a Monetary Union: Policy Issues & Analytical Models," Money Macro and Finance (MMF) Research Group Conference 2006 165, Money Macro and Finance Research Group. [Downloadable!]
  6. Giovanni Di Bartolomeo & Lorenza Rossi, 2005. "Efficacy of Monetary Policy and Limited Asset Market Participation," Macroeconomics 0508027, EconWPA. [Downloadable!]
  7. Giovanni Di Bartolomeo & Lorenza Rossi & Massimiliano Tancioni, 2006. "Monetary Policy under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison," Working Papers 97, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
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