Optimal fiscal and monetary policy: equivalence results

Isabel Correia (ihc@ucp.pt), Juan Pablo Nicolini and Pedro Teles

No WP-02-16, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: In this paper, we analyze 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 independently 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: Fiscal policy; Monetary policy (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (38)

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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 (2003)
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