Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy

Jagjit Chadha () and Charles Nolan ()

CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: Stabilization policy involves joint monetary and fiscal rules. We develop a model enabling us to characterize systematic simple monetary and fiscal policy over the business cycle. We principally focus on the following question: what are the key properties of the joint simple rule governing the conduct of systematic stabilization policy? We find that conducting stabilization policy incorporates not only a set of monetary policy choices governed by the so-called ‘Taylor principle’ but also fiscal policy that gives considerable force to automatic stabilizers. Recent US and UK monetary and fiscal choices seem broadly consistent with this model. This result is found to be robust to a number of alternate modeling strategies.

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-mac
Date: Written 2004-11
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http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0406.pdf Revised Version, 2004 (application/pdf)
http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0406techannex.pdf Technical Annex (application/pdf)

Related works:
Working Paper: Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy (2002)
Journal Article: Optimal simple rules for the conduct of monetary and fiscal policy (2007)
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