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Savings, asset scarcity, and monetary policy

Lukas Altermatt ()

Working papers from Faculty of Business and Economics - University of Basel

Abstract: This paper analyzes optimal monetary and fiscal policy in a model where money and savings are essential and asset markets matter. The model is able to match some stylized facts about the correlation of real interest rates and stock price-dividend ratios. The results show that fiscal policy can improve welfare by increasing the amount of outstanding government debt. If the fiscal authority is not willing or able to increase debt, the monetary authority can improve welfare of current generations by reacting procyclically to asset return shocks; however, this policy affects welfare of future generations if it is not coordinated with fiscal policy measures. The model also shows that policies like QE reduce welfare of future generations.

Keywords: New monetarism; overlapping generations; zero lower bound; optimal stabilization (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G12 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2018-05-07
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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2018/13

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