Motta, Giorgio and Tirelli, Patrizio (2012) Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation. Journal of Money, Credit and Banking, 44 (7). 1351–1374. ISSN 0022-2879
|PDF (Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation) - Draft Version |
Download (929Kb) | Preview
The combination of limited asset market participation and consumption habits generates indeterminacy for empirically plausible calibrations of a business cycle model characterized by price and nominal wage rigidities. Equilibrium determinacy is restored by demand management policies based on simple fiscal rules. In this regard, fiscal control of nominal income growth is particularly effective. In addition the complementarity between the Taylor rule and the fiscal feedback on nominal income growth produces relatively large welfare gains, limiting both aggregate and intragroup volatilities.
Actions (login required)