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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- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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122, Federal Reserve Bank of Minneapolis.
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532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Isabel Correia & Pedro Teles, 1997.
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Discussion Paper / Institute for Empirical Macroeconomics
123, Federal Reserve Bank of Minneapolis.
- Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October.
- Calvo, Guillermo A & Obstfeld, Maurice, 1990. "Time Consistency of Fiscal and Monetary Policy: A Comment," Econometrica, Econometric Society, vol. 58(5), pages 1245-47, September.
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