Is it Possible to Go Back to Ad Hoc Macroeconomic Models? The Case of the Romer- Taylor Model
AbstractIn absence of fiscal stabilizing rules, the original Romer-Taylor model is unstable in the issuing of government bonds. Adding a wealth effect to the consumption function seems reasonable to provide rationality to the consumers, but that destabilize even more the Romer-Taylor’s framework. A fiscal stabilizing rule, where there is a tax on the wealth effect for consumers, may stabilize output, inflation and the government budget constraint in the long run. In this context, the renewed Romer-Taylor model constitutes a good instrument to provide policy prescriptions.
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Bibliographic InfoPaper provided by Universidad Iberoamericana, Department of Economics in its series Working Papers with number 0312.
Date of creation: 2012
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