GOVERNMENT POLICY IN MONETARY ECONOMIES

Fernando Martin

International Economic Review, 2013, vol. 54, issue 1, 185-217

Abstract: I study how the general and specific details of a micro‐founded monetary framework affect the determination of policy when the government has limited commitment. In the general framework, policy is determined by the interaction between the incentives to smooth distortion intertemporally and a time‐consistency problem. Resolving financial and trading frictions affects long‐run policy significantly. Policy response to fluctuations in productivity is quantitatively different across model variants, mainly due to the idiosyncratic behavior of the money demand. Other types of shocks, both transitory and permanent, affect policy in a similar manner across a variety of specifications.

Date: 2013
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https://doi.org/10.1111/j.1468-2354.2012.00730.x

Related works:
Working Paper: Government policy in monetary economies (2011)
Working Paper: Government Policy in Monetary Economies (2010)
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