Policy Games, Distributional Conflicts and the Optimal Inflation (new version)
AbstractThis paper shows that Limited Asset Market Participation generates an extra inflation bias when the fiscal and the monetary authority play strategically. A fully redistributive fiscal policy eliminates the extra inflation-bias, however, the latter is cancelled at the cost of reducing Ricardians' welfare. A fiscal authority which redistributes income only partially, reduces the inflation-bias, but rises Government spending. Despite a fully conservative monetary policy is necessary to get price stability, it implies a reduction in liquidity constrained consumers' welfare, in the absence of redistributive fiscal policies. Finally, under a crisis scenario price stability cannot be ensured by Ramsey without redistribution.
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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 031.
Length: 36 pages
Date of creation: Nov 2013
Date of revision:
liquidity constrained consumers; optimal monetary and fiscal policy; strategic interaction; inflation bias; redistribution.;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-MAC-2013-02-03 (Macroeconomics)
- NEP-MON-2013-02-03 (Monetary Economics)
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