Fiscal policy lag and equilibrium determinacy in a continuous-time New Keynesian model

Eiji Tsuzuki ()
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Eiji Tsuzuki: Chiba Keizai University

International Review of Economics, 2016, vol. 63, issue 3, No 2, 215-232

Abstract: Abstract It has been suggested that local equilibrium determinacy can be achieved by applying active monetary policies combined with passive fiscal policies in discrete-time New Keynesian (NK) models that include a fiscal policy rule with a time lag in the policy response. However, indeterminacy can occur even under such policies in models with money in the production function. In this paper, we first confirm that these results hold in a continuous-time NK model without a policy lag. Furthermore, we present the case of a fiscal policy lag that is capable of avoiding indeterminacy.

Keywords: Continuous-time New Keynesian model; Policy lag; Delay-differential equation; Dynamic analysis (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s12232-016-0250-7

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