Policy Games with Distributional Conflicts

Alice Albonico and Lorenza Rossi

No 26, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper studies the effects generated by limited asset market participation under different fiscal and monetary policy games. We find that the distributional conflict due to limited asset market participation rises the inflation bias when the two authorities are independent and play strategically. A fully redistributive fiscal policy eliminates the extra inflation bias. However, the latter is cancelled at the cost of strongly reducing the Ricardian welfare in terms of consumption equivalents. A partial redistributive fiscal policy is able to reduce the inflation bias, but generates a strong Government bias. Finally, despite a fully conservative monetary policy is necessary to get price stability, it still implies a very strong reduction in liquidity constrained consumers welfare, in the absence of a redistributive fiscal policy. The model also implies some interesiting results when simulating a financial crisis scenario.

Keywords: liquidity constrained consumers; optimal monetary and fiscal policy; strategic interaction; inflation bias. (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-11
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0026.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:026

Access Statistics for this paper

More papers in DEM Working Papers Series from University of Pavia, Department of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Alice Albonico ( this e-mail address is bad, please contact ).