Complex interplay between monetary and fiscal policies in a real economy model

Fausto Cavalli, Ahmad Naimzada and Nicolò Pecora

No 409, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In this paper we consider a nonlinear model for the real economy described by a multiplieraccelerator setup. The model comprises the government sector, which influences the output dynamics by means of the fiscal policy, and the money market, where the money supply depends upon the fluctuations in the economic activity. Through rigorous analytical tools combined with numerical simulations, we investigate the stability conditions of the unique steady state and the emergence of different kinds of endogenous dynamics, which are the results of the fraction of the fiscal and the monetary policy through their reactivity degrees. Such policies, if properly tuned, can lead the economy toward the desired full employment target but, on the other hand, can also generate endogenous fluctuations in the pace of the economic activity, associated with the occurrence of closed invariant curves and multistability phenomena.

Keywords: nonlinear dynamics; monetary and fiscal policies; bifurcations; multistability. (search for similar items in EconPapers)
Pages: 21
Date: 2019-05, Revised 2019-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Journal Article: Complex interplay between monetary and fiscal policies in a real economy model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:409

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