 Policy Games, Distributional Conflicts and the Optimal Inflation (new version)Alice Albonico and Lorenza Rossi No 31, DEM Working Papers Series from University of Pavia, Department of Economics and Management Abstract: This paper shows that Limited Asset Market Participation generates an extra inflation bias when the fiscal and the monetary authority play strategically. A fully redistributive fiscal policy eliminates the extra inflation-bias, however, the latter is cancelled at the cost of reducing Ricardians' welfare. A fiscal authority which redistributes income only partially, reduces the inflation-bias, but rises Government spending. Despite a fully conservative monetary policy is necessary to get price stability, it implies a reduction in liquidity constrained consumers' welfare, in the absence of redistributive fiscal policies. Finally, under a crisis scenario price stability cannot be ensured by Ramsey without redistribution. Keywords: liquidity constrained consumers; optimal monetary and fiscal policy; strategic interaction; inflation bias; redistribution. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:031 Access Statistics for this paper More papers in DEM Working Papers Series from University of Pavia, Department of Economics and Management Contact information at EDIRC. |
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