Simple Monetary-Fiscal Targeting Rules
We analyze the characteristics of optimal dynamics in an economy in which neither prices nor wages adjust instantaneously and lump-sum taxes are unavailable as a source of government finance. We then propose that monetar and fiscal policy should be coordinated to satisfy a pair of simple specific targeting rules, a rule for (wage) inflation and a relationship that links the growth of real wages to past price and wage developments, and output gap dynamics. We show that such simple rule-based conduct of policy can do remarkably well in replicating the dynamics of the economy under optimal policy following a given shock.
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| Date of creation: | 15 Jan 2008 |
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| Handle: | RePEc:san:cdmawp:0801 |
| Contact details of provider: | Postal: Phone: 01334 462420 Fax: 01334 462444 Web page: http://www.st-andrews.ac.uk/cdmaEmail: More information through EDIRC
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