 A Simple “Public Debt-Deflation” Theory: Leeper revisitedRym Aloui () and Michel Guillard () No 09-11, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne Abstract: In this paper, we study the interaction between monetary and fiscal poli- cies from the perspective of global analysis in a non-Ricardian economy with capital and a zero bound on the nominal interest rate. We demonstrate in this framework the possible coexistence of four steady state equilibria, each having the properties of one of the equilibria described by Leeper (1991). But whereas in Leeper (1991), an equilibrium corresponds to a particular configuration of fiscal and monetary policy -active or passive- , we obtain these four equi- libria for a unique set of the policy parameter space. We show in particular that a liquidity trap -deflationary- equilibrium, which is also characterized by a high public debt-to-GDP ratio, a low capital stock and a low consumption level, owns the usually required properties for local determinacy, as well as the more traditional equilibrium targeted by the monetary and fiscal authorities. The model is calibrated based on European annual data and simulated in order to qualitatively asses the implications of a self-fulfilling expectation shock. Keywords: Wealth Effects; Monetary and Fiscal Rules; Public Debt; Liquidity Trap; Deflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:09-11 Access Statistics for this paper More papers in Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne Contact information at EDIRC. |
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