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Monetary Policy and Fiscal Rules

  • Giancarlo Marini

    ()

    (University of Rome II - Faculty of Economics)

  • Alessandro Piergallini

    ()

    (University of Rome II)

  • Barbara Annicchiarico

    (University of Bristol - Department of Economics)

This paper studies the performance of monetary policy under alternative fiscal regimes in a dynamic New Keynesian optimizing general equilibrium model with wealth effects. The interactions between fiscal policy and interest rate rules are shown to have relevant implications for the existence of a unique rational expectations equilibrium. When calibrated to Euro Area quarterly data, the model simulation results show that the preferred monetary-fiscal regime for inflation stabilization consists of a generalized Taylor rule with a low degree of inertia coupled with a public debt-GDP ratio targeting rule.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 50.

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Length: 37
Date of creation: 01 Mar 2004
Date of revision:
Handle: RePEc:rtv:ceisrp:50
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