DOES THE TIMING OF THE CASH-IN-ADVANCE CONSTRAINT MATTER FOR OPTIMAL FISCAL AND MONETARY POLICY?

Sanjay Chugh

Macroeconomic Dynamics, 2009, vol. 13, issue S1, 133-150

Abstract: I demonstrate that the precise timing of financial markets and goods markets in a simple cash good/credit good model does not matter for the main results in the Ramsey literature on optimal fiscal and monetary policy. In Ramsey models based on Lucas and Stokey [Journal of Monetary Economics 12, 55–93 (1983)] and Chari, Christiano, and Kehoe [Journal of Money, Credit, and Banking 23, 519–539 (1991)], nominal money holdings are freely adjustable in response to shocks in the period in which they will be used to purchase consumption. In contrast, under Svensson [Journal of Political Economy 93, 919–944 (1985)] timing, nominal balances cannot be adjusted in the period they will be used. The broad finding is that benchmark Ramsey results are not very sensitive to this slight, ultimately ad hoc, modification. In particular, optimal inflation continues to display very high variability just as in the original models, although this can differ depending on exactly which exogenous processes are driving the economy. That the basic results in the Ramsey literature are not sensitive to the choice of cash/credit timing is reassuring as Ramsey analysis is applied to an ever-expanding set of model environments.

Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:13:y:2009:i:s1:p:133-150_08

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().