High trend inflation and passive monetary detours

Guido Ascari, Anna Florio and Alessandro Gobbi

Economics Letters, 2018, vol. 172, issue C, 138-142

Abstract: Does the long-run Taylor principle (Davig and Leeper, 2007) hold when both monetary and fiscal policies can switch and there is positive trend inflation? We find that with high trend inflation passive monetary detours are no longer possible, whatever fiscal policy is in place. This has important policy implications in terms of flexibility and monetary–fiscal authorities coordination.

Keywords: Trend inflation; Monetary–fiscal policy interactions; Markov-switching; Determinacy (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Date: 2018
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Working Paper: High trend inflation and passive monetary detours (2018)
Working Paper: High Trend Inflation and Passive Monetary Detours (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:172:y:2018:i:c:p:138-142

DOI: 10.1016/j.econlet.2018.08.030

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