Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers
by Campbell Leith and Leopold von Thadden
This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify in our model discontinuities associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements. These features extend the logic of Leeper (1991) to an environment in which fiscal policy is non-neutral. Naturally, this non-neutrality increases the importance of fiscal aspects for the design of policy rules consistent with determinate dynamics
Year of publication: |
2006
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Other Persons: | Leith, Campbell B. (contributor) ; Thadden, Leopold von (contributor) |
Publisher: |
Frankfurt am Main : European Central Bank |
Subject: | Geldpolitik | Monetary policy | Finanzpolitik | Fiscal policy | Regelbindung versus Diskretion | Rules versus discretion | Neoklassische Synthese | Neoclassical synthesis | Dynamisches Gleichgewicht | Dynamic equilibrium | Ricardianische Äquivalenz | Ricardian equivalence | Theorie | Theory |
Saved in:
freely available
Extent: | Online-Ressource, 42 S. = 690 KB, Text |
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Series: | Working paper series / European Central Bank. - Frankfurt, M. : European Central Bank, ISSN 1725-2806, ZDB-ID 2123559-4. - Vol. 649 |
Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature |
Language: | English |
Notes: | Systemvoraussetzungen: Acrobat Reader |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10003337474