Interest rate bounds and fiscal policy
When the monetary authority controls the short-term interest rate we find that under a regime of permanent (and even persistent but temporary) deficits that a strict upper bound on the feasible interest rate sequence is present. More generally, the satisfaction of the fiscal authorityâ€™s present value budget constraint in the presence of a deficit sequence, means that monetary and fiscal decisions cannot be independent. This is an important caveat to the results in McCallum (1984).
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- Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 1998.
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- Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers.
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"Rational Ponzi Games,"
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- John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
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in: Monetary Policy Rules, pages 319-348
National Bureau of Economic Research, Inc.
- Bennett T. McCallum, 1982.
"Are Bond-Financed Deficits Inflationary? A Ricardian Analysis,"
NBER Working Papers
0905, National Bureau of Economic Research, Inc.
- McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-35, February.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
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