Interest Rate Bounds and Fiscal Policy
Jagjit Chadha () and
Charles Nolan ()
No 200401, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis
When the monetary authority controls the short-term interest rate we find that under a regime of permanent (and even persistent but temporary) deficits that a strict upper bound on the feasible interest rate sequence is present. More generally, the satisfaction of the fiscal authorityâ€™s present value budget constraint in the presence of a deficit sequence, means that monetary and fiscal decisions cannot be independent. This is an important caveat to the results in McCallum (1984).
Keywords: Intertemporal macro; monetary policy and fiscal policy interactions. (search for similar items in EconPapers)
JEL-codes: E63 E52 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Interest rate bounds and fiscal policy (2004)
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