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Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness

  • Giovanni Di Bartolomeo

    (Department of Public Economics, University of Rome 'La Sapienza')

  • Francesco Giuli

    (Department of Public Economics, University of Rome 'La Sapienza')

  • Marco manzo

    (Department of Public Economics, University of Rome 'La Sapienza')

This paper extends the stabilization game between monetary and fiscal authorities to the case of multiplicative (model) uncertainty. In this context, the “symbiosis assumption”, i.e. fiscal and monetary policy share the same ideal targets, no longer guarantees the achievement of ideal output and inflation, unless the ideal output is equal to its natural level. A time consistency problem arises.

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File URL: http://econwpa.repec.org/eps/mac/papers/0508/0508005.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0508005.

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Length: 21 pages
Date of creation: 05 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0508005
Note: Type of Document - pdf; pages: 21
Contact details of provider: Web page: http://econwpa.repec.org

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