The Role of Uncertain Government Preferences For Fiscal and Monetary Policy Interaction

Olga Kuznetsova and Sergey Merzlyakov ()
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Sergey Merzlyakov: National Research University Higher School of Economics

HSE Working papers from National Research University Higher School of Economics

Abstract: This paper explores the role of uncertain government preferences for fiscal and monetary policy interaction. Our analysis shows that the uncertainty about government preferences does not affect the macroeconomic equilibrium if the fiscal multiplier is known. In the case of multiplicative uncertainty, uncertain government preferences make fiscal policy more contractionary, while monetary policy becomes more expansionary. This leads to higher expected inflation and lower expected output, which means a stronger inflation bias

Keywords: fiscal and monetary policy interaction; multiplicative uncertainty; uncertain preferences. (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 E63 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published in WP BRP Series: Economics / EC, October 2015, pages 1-17

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:102/ec/2015

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