Optimal Fiscal and Monetary Policies Under Limited Asset Market Participation

Lorenzo Menna (lorenzo.menna@banxico.org.mx)

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2016, vol. 2, issue 3, No 4, 363-383

Abstract: Abstract I reconsider the issue of optimal monetary and fiscal policy in a fully fledged DSGE model augmented for a share of agents excluded from asset market participation (rule-of-thumb consumers) when many fiscal instruments are available. Limited asset market participation entails a stronger use of the consumption tax in place of the labor tax in steady state. Along the business cycle, monetary policy stabilizes inflation while fiscal policy can play an important role in attenuating the effect of productivity shocks on income distribution.

Keywords: Trend inflation; Monetary and fiscal policy; Ramsey plan; Limited Asset Market Participation (search for similar items in EconPapers)
JEL-codes: E32 E58 E63 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s40797-016-0038-7

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