EconPapers    
Economics at your fingertips  
 

Jointly optimal monetary and fiscal policy rules under liquidity constraints

Huixin Bi () and Michael Kumhof ()

Journal of Macroeconomics, 2011, vol. 33, issue 3, 373-389

Abstract: We study the welfare properties of an economy where both monetary and fiscal policies follow simple rules, and where a subset of agents is liquidity constrained. The welfare benefits of optimizing the fiscal rule are far larger than those of optimizing the monetary rule. The optimized fiscal rule implements strong automatic stabilizers that primarily stabilize the income of liquidity-constrained agents, rather than output. Transfers targeted to liquidity-constrained agents are the preferred fiscal instrument. The optimized monetary rule exhibits super-inertia and a weak inflation response. Optimized simple rules perform as well as the optimal policy under the timeless perspective.

Keywords: Optimal; simple; policy; rules; Timeless; perspective; optimal; policy; Monetary; policy; rules; Fiscal; policy; rules; Welfare; analysis; Liquidity; constraints (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070411000152
Full text for ScienceDirect subscribers only

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:eee:jmacro:v:33:y:2011:i:3:p:373-389

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-11-23
Handle: RePEc:eee:jmacro:v:33:y:2011:i:3:p:373-389