Monetary and Fiscal Policy Interactions: Leeper (1991) Redux

Guido Ascari, Anna Florio and Alessandro Gobbi

No 788, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract: A natural generalisation of the original Leeper (1991) taxonomy leads to the concepts of globally active (or passive) and globally switching policies to explain the determinacy properties of a model where both monetary and fiscal policies may switch according to a Markov process. Monetary and fiscal policies need to be globally balanced to guarantee a unique equilibrium: globally active monetary policies need to be coupled with globally passive fiscal policies, and switching monetary policies with switching fiscal policies. This new taxonomy also links the determinacy analysis to the model dynamics because it qualifies under which conditions expectations and wealth effectsarise in the Markov-switching model.

Keywords: Monetary Policy and Fiscal Policy Interaction; Markov Switching; Non-linear models. (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2016-03-15
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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