IDEAS home Printed from https://ideas.repec.org/p/pav/wpaper/138.html
   My bibliography  Save this paper

Policy Games with Liquidity Constrained Consumers

Author

Listed:
  • Alice Albonico

    (Department of Economics and Quantitative Methods, University of Pavia)

  • Lorenza Rossi

    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

In the light of the recent financial crisis, we investigate the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authority are independent and play strategically. We find that limited asset market participation strongly affects the optimal steady state and the optimal dynamics of the different policy regimes considered. In particular: (i) both in the long run and in short run equilibrium, a greater inflation bias is optimal than in the standard representative agent economy; (ii) in response to a markup shock, fiscal policy becomes more active as the fraction of liquidity constrained agents increases; (iii) optimal discretionary policies imply welfare losses for Ricardian, while liquidity constrained consumers experience welfare gains with respect to Ramsey.

Suggested Citation

  • Alice Albonico & Lorenza Rossi, 2011. "Policy Games with Liquidity Constrained Consumers," Quaderni di Dipartimento 138, University of Pavia, Department of Economics and Quantitative Methods.
    • Handle: RePEc:pav:wpaper:138
    as

    Download full text from publisher

    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/wpaper/q138.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    liquidity constrained consumers; optimal monetary and fiscal policy; strategic interaction; inflation bias;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pav:wpaper:138. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Paolo Bonomolo (email available below). General contact details of provider: https://edirc.repec.org/data/dppavit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.