Optimal Monetary Policy and Fiscal Policy Interaction in a non-Ricardian Economy
Massimiliano Rigon () and
Francesco Zanetti ()
No 1708, BCAM Working Papers from Birkbeck Centre for Applied Macroeconomics
This paper studies optimal discretionary monetary policy and its interaction with fiscal policy in a New Keynesian model with fi?nitely-lived consumers and government debt. Optimal discretionary monetary policy involves debt stabilization to reduce consumption dispersion across cohorts of consumers. The welfare relevance of debt stabilization is proportional to the debt-to-output ratio and inversely related to the household?s probability of survival that affects the household?s propensity to consume out ?financial wealth. Debt stabilization bias implies that discretionary optimal policy is suboptimal compared with the infl?ation targeting rule that fully stabilizes the output gap and the in?flation rate while leaving debt to freely fl?uctuate in response to demand shocks.
Keywords: Optimal monetary policy; ?fiscal and monetary policy interaction. (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://www.bbk.ac.uk/ems/research/BirkCAM/working-papers/BCAM1708.pdf First version, 2017 (application/pdf)
Journal Article: Optimal Monetary Policy and Fiscal Policy Interaction in a Non-Ricardian Economy (2018)
Working Paper: Optimal monetary policy and fiscal interactions in a non-Ricardian economy (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bbk:bbkcam:1708
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in BCAM Working Papers from Birkbeck Centre for Applied Macroeconomics Malet St.,London WC1E 7HX, UK.
Bibliographic data for series maintained by ().