RAMSEY FISCAL AND MONETARY POLICY UNDER STICKY PRICES AND LIQUID BONDS

Yifan Hu and Timothy Kam
Authors registered in the RePEc Author Service: Mardi Dungey

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We construct a monetary model where government bonds also provide liquidity service. Liquid government bonds affect equilibrium allocations, inflation and create an endogenous interest-rate spread. How this new feature alters optimal fiscal-monetary policy in a stochastic sticky-price environment is considered. The tradeoff confronting a planner, shown in recent literature, between using inflation surprise and labor-income tax is eradicated by the existence of the liquid bond. We find that the more sticky prices become, the more the planner stabilizes prices, but the planner also creates less distortionary and less volatile income taxes by resorting to taxing the liquidity service of bonds.

JEL-codes: E42 E52 E63 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2005-12
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... 6/25_hu_kam_2005.pdf (application/pdf)

Related works:
Working Paper: RAMSEY FISCAL AND MONETARY POLICY UNDER STICKY PRICES AND LIQUID BONDS (2006)
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:een:camaaa:2005-25

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().