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 InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 204.
Length: 31 pages
Date of creation: Mar 2011
Date of revision: Mar 2011
Rule of Thumb Consumers; DSGE; Determinacy; Limited Asset Market Participation; Taylor Principle; Optimal Simple Rule;
Other versions of this item:
- Giorgio Motta & Patrizio Tirelli, 2012. "Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1351-1374, October.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-19 (All new papers)
- NEP-CBA-2011-03-19 (Central Banking)
- NEP-DGE-2011-03-19 (Dynamic General Equilibrium)
- NEP-MAC-2011-03-19 (Macroeconomics)
- NEP-MON-2011-03-19 (Monetary Economics)
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