Fiscal Policy and Optimal Monetary Rules in a non Ricardian Economy

Jean-Pascal Benassy

Review of Economic Dynamics, 2003, vol. 6, issue 3, 498-512

Abstract: We study in this article how the conduct of fiscal policy interacts with the choice of oprimal monetary rules by a central bank. We consider a non Ricardian model with nondistortionary fiscal policyt, and compare two policy packages, one where fiscal and monetary policy are simultaneously optimized, and one where the monetary policy is optimized under a given fiscal policy. We find a number of results that would not appear in the traditional Ricardian framework: (a) the optimal monetary rule may be activist when fiscal policy is kept constant, whereas it is not when combined with optimal fiscal policy; (b) combining optimally fiscal and monetary policies may lead to far superior outcomes, even when, following Sargent and Wallace (1975), government is allowed to react to much less information. (Copyright: Elsevier)

Keywords: Monetary policy rules; fiscal policy; interest rate rules; optimal policy; nominal rigidities. (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1016/S1094-2025(03)00017-6 Full text (application/pdf)
Access to full texts is restricted to ScienceDirect subscribers and ScienceDirect institutional members. See http://www.sciencedirect.com/ for details.

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:red:issued:v:6:y:2003:i:3:p:498-512

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/S1094-2025(03)00017-6

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().