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Policy Games with Distributional Conflicts


  • Alice Albonico

    () (Department of Economics and Management, University of Pavia)

  • Lorenza Rossi

    () (Department of Economics and Management, University of Pavia)


This paper studies the effects generated by limited asset market participation under different fiscal and monetary policy games. We find that the distributional conflict due to limited asset market participation rises the inflation bias when the two authorities are independent and play strategically. A fully redistributive fiscal policy eliminates the extra inflation bias. However, the latter is cancelled at the cost of strongly reducing the Ricardian welfare in terms of consumption equivalents. A partial redistributive fiscal policy is able to reduce the inflation bias, but generates a strong Government bias. Finally, despite a fully conservative monetary policy is necessary to get price stability, it still implies a very strong reduction in liquidity constrained consumers welfare, in the absence of a redistributive fiscal policy. The model also implies some interesiting results when simulating a financial crisis scenario.

Suggested Citation

  • Alice Albonico & Lorenza Rossi, 2012. "Policy Games with Distributional Conflicts," DEM Working Papers Series 026, University of Pavia, Department of Economics and Management.
  • Handle: RePEc:pav:demwpp:026

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    References listed on IDEAS

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    More about this item


    liquidity constrained consumers; optimal monetary and fiscal policy; strategic interaction; inflation bias.;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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