The Design of Monetary and Fiscal Policy: A Global Perspective

Stefano Eusepi and Jess Benhabib

No 388, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: We study the the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies. We show that the presence of capital is indeed another independent source of local and global multiplicites, even under active policies that yield local determinacy. We also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation. We then explore the design of monetary policies that avoid multiple equilibria. We show that interest rate policies that respond to the output gap, while potentially a source of significant inefficiencies, may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics

Keywords: Taylor rules; fiscal policy; multiple equilibria; global dynamics (search for similar items in EconPapers)
JEL-codes: E31 E52 E63 (search for similar items in EconPapers)
Date: 2005-11-11
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Citations: View citations in EconPapers (78)

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Related works:
Journal Article: The design of monetary and fiscal policy: A global perspective (2005)
Journal Article: The design of monetary and fiscal policy: a global perspective (2005)
Working Paper: The Design of Monetary and Fiscal Policy: A Global Perspective (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:388

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