The Optimal Coordination of Fiscal and Monetary Policy in a New Keynesian Framework

David Vines and Paul Luk ()

No 10895, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies the coordination of monetary and fiscal policy in a simple New Keynesian model. We show that, in such a setup and when the policymaker acts with commitment, it is optimal not to use fiscal policy to stabilise inflation. We illustrate this result using additively separable preferences and Greenwood-Hercowitz-Huffman (1988) preferences, and we discuss the intuition behind this result.

Keywords: Fiscal policy; Monetary policy; New keynesian model (search for similar items in EconPapers)
JEL-codes: E52 E61 E62 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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