EconPapers    
Economics at your fingertips  
 

Optimal fiscal feedback on debt in an economy with nominal rigidities

Tatiana Kirsanova and Simon Wren-Lewis

No 2007-26, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal. We look at the extent to which different degrees of fiscal feedback enhance or detract from the ability of the monetary authorities to stabilize output and inflation. Using an objective function derived from utility, we find the optimal level of fiscal feedback to be small. A clear discontinuity exists in the behavior of monetary policy and welfare on either side of this optimal level. As the extent of fiscal feedback increases, optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks. However, this fiscal stabilization is less efficient than monetary policy, so welfare declines. In contrast, if fiscal feedback falls below some critical value, optimal monetary policy becomes strongly passive, and this passive monetary policy leads to a sharp deterioration in welfare.

Date: 2007
New Economics Papers: this item is included in nep-cba and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... s/wp/2007/wp0726.pdf (application/pdf)

Related works:
Journal Article: Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities (2012) Downloads
Working Paper: Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities (2007) Downloads
Working Paper: Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities (2007) Downloads
Working Paper: Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2007-26

Ordering information: This working paper can be ordered from
pubs@frbatlanta.org

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark (rob.sarwark@atl.frb.org).

 
Page updated 2024-12-28
Handle: RePEc:fip:fedawp:2007-26