Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy

Kengo Nutahara

No 13-003E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: This study investigates aggregate implications of fiscal policy that responds to asset price fluctuations. In our sticky-price model, the monetary authority follows a Taylor rule and the fiscal authority follows a rule that the target of government spending is asset prices and responds negatively to the asset price fluctuations. It is shown that government spending that targets asset prices is a source of equilibrium indeterminacy.

Pages: 24
Date: 2013-05
New Economics Papers: this item is included in nep-mac and nep-mon
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