The time consistency of monetary and fiscal policies
Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)
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- Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1987. "Time Consistency of Fiscal and Monetary Policy," Econometrica, Econometric Society, vol. 55(6), pages 1419-1431, November.
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- V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimality of the Friedman rule in economies with distorting taxes," Staff Report 158, Federal Reserve Bank of Minneapolis.
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Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 325-346, April.
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- Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
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- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
- V. V. Chari & Patrick J. Kehoe, 1989.
122, Federal Reserve Bank of Minneapolis.
- Calvo, Guillermo A & Obstfeld, Maurice, 1990. "Time Consistency of Fiscal and Monetary Policy: A Comment," Econometrica, Econometric Society, vol. 58(5), pages 1245-1247, September.
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