When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levels
Motta, G., Tirelli, P. (2012). Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Partecipation. JOURNAL OF MONEY, CREDIT, AND BANKING, 44(7), 1351-1374 [10.1111/j.1538-4616.2012.00535.x].
Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Partecipation
MOTTA, GIORGIO ENRICO;TIRELLI, PATRIZIO
2012
Abstract
When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levelsI documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.