On the Interaction between Monetary and Fiscal Policies under Perfect Foresight
The author defines two parameters: the proportion (j) of interest payments on government bonds financed by taxes (as the fiscal paramet er) and the ratio (a) of money to bond finance of the deficit (as the monetary parameter). It is shown that while the effect of an increase in j is deflationary, the effect of a is ambiguous and depends on the level of j. The model is used to study the questions o f monetary neutrality, pure bond finance, and pure money finance of the deficit, as well as the tradeoff between monetary and fiscal policie s in maintaining a given level of inflation. Copyright 1988 by Royal Economic Society.
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Volume (Year): 40 (1988)
Issue (Month): 1 (March)
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