A Continuous-Time Model of the Term Structure of Interest Rates with Fiscal-Monetary Policy Interactions

Massimiliano Marzo, Silvia Romagnoli () and Paolo Zagaglia
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Silvia Romagnoli : Universita di Bologna, Postal: Department of Mathematics, Universita di Bologna, Viale Filopanti, 5 Bologna, Italy

No 2008:6, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: We study the term structure implications of the fiscal theory of price level determination. We introduce the intertemporal budget constraint of the government in a general equilibrium model in continuous time. Fiscal policy is set according to a simple rule whereby taxes react proportionally to real debt. We show how to solve for the prices of real and nominal zero coupon bonds.

Keywords: Bond Pricing; Fiscal Policy; Mathematical Methods (search for similar items in EconPapers)
JEL-codes: D90 G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008-07-29
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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http://www2.ne.su.se/paper/wp08_06.pdf (application/pdf)

Related works:
Working Paper: A continuous-time model of the term structure of interest rates with fiscal-monetary policy interactions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:2008_0006

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