Optimal Monetary and Fiscal Policy in an Economy with Inflation Persistence

David Vines and Paul Luk ()

No 10586, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies a simple New-Keynesian model of fiscal and monetary policy coordination when the policymaker acts under commitment. With a New Keynesian Phillips curve it is optimal to control inflation only through the use of monetary policy. But, when price-setters use a Steinsson (2003) Phillips curve, fiscal policy plays an active role, enabling a greater degree of consumption smoothing.

Keywords: Fiscal policy; Monetary policy; New keynesian model; Phillips curve (search for similar items in EconPapers)
JEL-codes: E4 E5 E6 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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