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Monetary and fiscal policy rules in a model with capital accumulation and potentially non-superneutral money

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Author Info
von Thadden, Leopold
Abstract

We consider the properties of two monetary policy rules (monetary targeting, Taylor-type interest rate rule) in an intertemporal equilibrium model with capital accumulation and two outside assets (government bonds, fiat money). The paper shows that the long-run behaviour of the economy depends critically on whether under the monetary-fiscal regime the steady-state real interest rate is independent of inflation. If this is the case, there exists in our model a unique steady state with stable adjustment dynamics under either monetary policy rule. By contrast, if superneutrality fails, dynamics under the interest rate rule may suffer from global indeterminacy arising from multiple steady states which do not necessarily differ in terms of the 'activeness' of the interest rate feedback on inflation. This is ruled out under monetary targeting. -- Diese Arbeit untersucht die Eigenschaften von zwei geldpolitischen Regeln (Geldmengensteuerung, Zinsregel vom Taylor-Typ) in einem intertemporalen Gleichgewichtsmodell mit Kapitalbildung und zwei staatlichen Aktiva (staatlichen Schuldtiteln, Fiatgeld). Es wird gezeigt, dass die langfristigen Eigenschaften der Modellökonomie wesentlich davon abhängen, ob unter dem monetären und fiskalischen Regime der langfristige Realzins unabhängig von der Inflationsrate ist. Wenn dies der Fall ist, besitzt unser Modell ein eindeutiges langfristiges Gleichgewicht mit stabiler Anpassungsdynamik unter beiden geldpolitischen Regeln. Ist jedoch Geld nicht superneutral, besteht bei der Zinsregel die Gefahr, dass die Dynamik des Systems global indeterminiert ist aufgrund multipler langfristiger Gleichgewichte, die sich nicht notwendigerweise in der Stärke des Feedback-Effektes bezüglich der Inflation in der Zinsregel unterscheiden. Eine derartige Konstellation globaler Indeterminiertheit tritt bei der Geldmengensteuerung nicht auf.

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2002,22.

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Date of creation: 2002
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Handle: RePEc:zbw:bubdp1:4187

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Related research
Keywords: Monetary Policy; Fiscal regimes; Overlapping generations;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary 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
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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  1. Leopold von Thadden, 2004. "Active monetary policy, passive fiscal policy and the value of pure debt: some further monetarist arithmetic," Money Macro and Finance (MMF) Research Group Conference 2003 108, Money Macro and Finance Research Group. [Downloadable!]
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