Policy rules under the monetary and the fiscal theories of the price-level
Jagjit Chadha ()
Macroeconomics and Finance in Emerging Market Economies, 2011, vol. 4, issue 2, 189-212
Price-level determination requires co-ordination of monetary and fiscal policy to ensure a unique rational expectations equilibrium (REE). This paper derives a number of implications for simple interest rate rules resulting from various fiscal strategies. We show that fiscal choices under either the monetary theory of the price-level (MTPL) and the fiscal theory of the price-level (FTPL) can challenge widely accepted principles of monetary policy. Specifically, we show that a fiscal rule that responds aggressively to output and inflation may force the monetary authorities to adopt significantly more aggressive output and inflation stabilization policy than suggested by the Taylor Principle. We also show how when monetary policy is severely constrained, the fiscal policy maker can act to stabilise the economy. Some policy conclusions in light of the lower zero bound for monetary policy and debt stabilization are drawn.
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: Policy Rules Under the Monetary and the Fiscal Theories of the Price-Level (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:taf:macfem:v:4:y:2011:i:2:p:189-212
Ordering information: This journal article can be ordered from
Access Statistics for this article
Macroeconomics and Finance in Emerging Market Economies is currently edited by Subrata Sarkar and Ashima Goyal
More articles in Macroeconomics and Finance in Emerging Market Economies from Taylor & Francis Journals
Series data maintained by Michael McNulty ().