The time consistency of monetary and fiscal policies
Fernando Alvarez,
Patrick Kehoe and
Pablo Neumeyer
No 616, Working Papers from Federal Reserve Bank of Minneapolis
Abstract:
Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)
Keywords: Monetary policy; Fiscal policy; Interest rates (search for similar items in EconPapers)
Date: 2002
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Working Paper: The time consistency of monetary and fiscal policies (2003) 
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