Optimal Fiscal and Monetary Policy: Equivalence Results

Isabel Correia (), Pedro Teles and Juan Pablo Nicolini

No 3730, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper, we analyse the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy. We consider an environment with monopolistic competitive firms, a shopping time technology, prices set one period in advance, and government expenditures that must be financed with distortionary taxes. We show that the sets of (frontier) implementable allocations are the same independent of the degree of price stickiness. Furthermore, the sets of policies that decentralize each allocation are also the same except in the extreme cases of flexible and sticky prices, where the sets are larger.

Keywords: Optimal fiscal and monetary policy; Sticky prices (search for similar items in EconPapers)
JEL-codes: E31 E40 E52 E58 E62 E63 (search for similar items in EconPapers)
Date: 2003-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Optimal Fiscal and Monetary Policy: Equivalence Results (2008)
Working Paper: Optimal fiscal and monetary policy: equivalence results (2008)
Working Paper: Optimal Fiscal and Monetary Policy: Equivalence Results (2003)
Working Paper: Optimal fiscal and monetary policy: equivalence results (2002)
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