Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy
This study investigates aggregate implications of fiscal policy that responds to asset price fluctuations. In our sticky-price model, the monetary authority follows a Taylor rule and the fiscal authority follows a rule that the target of government spending is asset prices and responds negatively to the asset price fluctuations. It is shown that government spending that targets asset prices is a source of equilibrium indeterminacy.
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