Taylor Rules Cause Fiscal Policy Ineffectiveness

Guido Ascari and Neil Rankin

CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: With the aim of constructing a dynamic general equilibrium model where fiscal policy can operate as a demand management tool, we develop a framework which combines staggered prices and overlapping generations based on uncertain lifetimes. Price stickiness plus lack of Ricardian Equivalence could be expected to make tax cuts, financed by increasing government debt, effective in raising short-run output. Surprisingly, in our baseline model this fails to occur. We trace the cause to the assumption that monetary policy is governed by a Taylor Rule. If monetary policy is instead governed by a money supply rule, fiscal policy effectiveness is restored.

Keywords: staggered prices; overlapping generations; fiscal policy effectiveness; Taylor Rules. (search for similar items in EconPapers)
JEL-codes: E62 E63 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.st-andrews.ac.uk/CDMA/papers/cp0707.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Taylor Rules Cause Fiscal Policy Ineffectiveness (2008)
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:san:cdmacp:0707

Access Statistics for this paper

More papers in CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis School of Economics and Finance, Castlecliffe, The Scores, Fife, KY16 9AZ. Contact information at EDIRC.
Bibliographic data for series maintained by The School of Economics and Finance ().