Dynamic monetary–fiscal interactions and the role of monetary conservatism
Journal of Monetary Economics, 2011, vol. 58, issue 3, 234-247
Assuming that macroeconomic policies are directed by distinct monetary and fiscal policy makers who cannot commit to future actions, we reassess the implications of monetary conservatism and fiscal impatience in a setting with nominal government debt. For environments where a non-negative steady state level of government debt (assets) emerges in the absence of conservatism and impatience, monetary conservatism induces accumulation of a higher stock of liabilities (assets) and has adverse (positive) welfare implications. This result obtains irrespectively of the degree of fiscal impatience and questions the unambiguous desirability of monetary conservatism traditionally found in the literature.
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Working Paper: Dynamic Monetary-Fiscal Interactions and the Role of Monetary Conservatism (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:58:y:2011:i:3:p:234-247
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