IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdp1/4209.html
   My bibliography  Save this paper

Active monetary policy, passive fiscal policy and the value of public debt: some further monetarist arithmetic

Author

Listed:
  • von Thadden, Leopold

Abstract

We consider the properties of two monetary policy rules ("strict inflation targeting", "constant money growth rule") in an intertemporal equilibrium model with flexible prices in which monetary policy is "active", while fiscal policy is "passive". Specifically, we assume that the fiscal agent takes the monetary policy rule as given and restricts itself to a policy which is consistent with a sustainable debt burden and stable steady-state dynamics. The paper shows that dynamic properties of the model economy may differ significantly between the two monetary policy rules if public debt is issued in nominal terms. Under a constant money growth rule which allows for temporary deviations of inflation from target in response to shocks there is scope for revaluations of public debt, acting as automatic stabilizers of government debt dynamics. By contrast, a policy of strict inflation targeting implements the target inflation rate also outside the steady state and precludes thereby such stabilizing revaluations. Owing to this feature, additional fiscal restraint may be needed which is not required under a constant money growth rule.

Suggested Citation

  • von Thadden, Leopold, 2003. "Active monetary policy, passive fiscal policy and the value of public debt: some further monetarist arithmetic," Discussion Paper Series 1: Economic Studies 2003,12, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:4209
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/19600/1/200312dkp.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]," MPRA Paper 26856, University Library of Munich, Germany.
    2. von Thadden, Leopold, 2004. "Active monetary policy, passive fiscal policy and the value of public debt: Some further monetarist arithmetic," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 223-251, June.

    More about this item

    Keywords

    Monetary policy; Fiscal regimes; Overlapping generations;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp1:4209. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/dbbgvde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.