Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy

Jagjit S. Chadha () and Charles Nolan ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We develop a simple model for studying the impact of monetary and fiscal policies on aggregate demand, at the business cycle frequencies. We focus on two questions principally. First, what are the key properties of the joint optimal simple rules governing the conduct of the systematic components of monetary and fiscal policy? Second, following Blanchard (1985) we construct an index of fiscal stance to disentangle the ‘expenditure’ and wealth effects of fiscal policy. We find that underpinning the so-called ‘Taylor principle’ is a fiscal policy maker giving full force to automatic stabilizers. We also find that the Mundellian assignment of policy instruments may have attractive properties.

Keywords: optimal simple rules; monetary and fiscal policy; finite lives (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: Written
Note: Ma
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Related works:
Working Paper: Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy (2004)
Journal Article: Optimal simple rules for the conduct of monetary and fiscal policy (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:cam:camdae:0224

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