The design of monetary and fiscal policy: a global perspective

Jess Benhabib and Stefano Eusepi

Proceedings, 2005

Abstract: We study the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies. We show that the presence of capital is indeed another independent source of local and global multiplicities, even under active policies that yield local determinacy. We also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation. We then explore the design of monetary policies that avoid multiple equilibria. We show that interest rate policies that respond to the output gap, while potentially a source of significant inefficiencies, may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics.

Keywords: Monetary policy; Taylor's rule; Fiscal policy (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (71)

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Journal Article: The design of monetary and fiscal policy: A global perspective (2005)
Working Paper: The Design of Monetary and Fiscal Policy: A Global Perspective (2005)
Working Paper: The Design of Monetary and Fiscal Policy: A Global Perspective (2005)
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