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On the Interaction of Monetary and Fiscal Policy

  • Chadha, J.S.
  • Nolan, C.

In this paper we review some fundamental issues that have been identified by macroeconomists in discussing the co-ordination of monetary and fiscal policy. As Sargent and Wallace (1981) graphically illustrated, the consolidated public sector present-value budget constraint means that monetary and fiscal policy are ultimately joint decisions. However, as we show in a quantitative general equilibrium model, even when fiscal solvency is not an issue, monetary and fiscal policy may still need to be co-ordinated.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0303.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0303.

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Length: 81
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:cam:camdae:0303
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