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Dynamic monetary–fiscal interactions and the role of monetary conservatism

  • Niemann, Stefan

Assuming that macroeconomic policies are directed by distinct monetary and fiscal policy makers who cannot commit to future actions, we reassess the implications of monetary conservatism and fiscal impatience in a setting with nominal government debt. For environments where a non-negative steady state level of government debt (assets) emerges in the absence of conservatism and impatience, monetary conservatism induces accumulation of a higher stock of liabilities (assets) and has adverse (positive) welfare implications. This result obtains irrespectively of the degree of fiscal impatience and questions the unambiguous desirability of monetary conservatism traditionally found in the literature.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 3 ()
Pages: 234-247

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Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:234-247
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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