RAMSEY OPTIMAL POLICY IN THE NEW-KEYNESIAN MODEL WITH PUBLIC DEBT

Jean-Bernard Chatelain and Kirsten Ralf

Macroeconomic Dynamics, 2022, vol. 26, issue 6, 1588-1614

Abstract: In the discrete-time new-Keynesian model with public debt, Ramsey optimal policy eliminates the indeterminacy of simple-rules multiple equilibria between the fiscal theory of the price level versus new-Keynesian versus an unpleasant equilibrium. If public debt volatility is taken into account into the loss function, the interest rate responds to public debt besides inflation and output gap. Else, the Taylor rule is identical to Ramsey optimal policy when there is zero public debt. The optimal fiscal-rule parameter implies the local stability of public-debt dynamics (“passive” fiscal policy).

Date: 2022
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Related works:
Working Paper: Ramsey Optimal Policy in theNew-Keynesian Model with Public Debt (2022)
Working Paper: Ramsey Optimal Policy in theNew-Keynesian Model with Public Debt (2022)
Working Paper: Ramsey Optimal Policy in the New-Keynesian Model with Public Debt (2020)
Working Paper: Ramsey Optimal Policy in the New-Keynesian Model with Public Debt (2019)
Working Paper: Ramsey Optimal Policy in the New-Keynesian Model with Public Debt (2019)
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