Monetary and fiscal policy rules in a model with capital accumulation and potentially non-superneutral money

Leopold von Thadden

No 2002,22, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: We consider the properties of two monetary policy rules (monetary targeting, Taylor-type interest rate rule) in an intertemporal equilibrium model with capital accumulation and two outside assets (government bonds, fiat money). The paper shows that the long-run behaviour of the economy depends critically on whether under the monetary-fiscal regime the steady-state real interest rate is independent of inflation. If this is the case, there exists in our model a unique steady state with stable adjustment dynamics under either monetary policy rule. By contrast, if superneutrality fails, dynamics under the interest rate rule may suffer from global indeterminacy arising from multiple steady states which do not necessarily differ in terms of the 'activeness' of the interest rate feedback on inflation. This is ruled out under monetary targeting.

Keywords: Monetary Policy; Fiscal regimes; Overlapping generations (search for similar items in EconPapers)
JEL-codes: E52 E63 H62 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:4187

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