Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness

Giovanni Di Bartolomeo (), Marco Manzo and Francesco Giuli

No 802, Working Papers from University of Crete, Department of Economics

Abstract: This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e. the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers¢ output target is equal to the natural level.

Keywords: Monetary-fiscal policy interactions; uncertainty; symbiosis. (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008-02-17
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Related works:
Working Paper: Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0802

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