Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers

Economics

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Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers. / Rossi, Raffaele.
In: Macroeconomic Dynamics, Vol. 18, No. 2, 03.2014, p. 395-417.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Rossi, R 2014, 'Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers', Macroeconomic Dynamics, vol. 18, no. 2, pp. 395-417. https://doi.org/10.1017/S1365100512000430

APA

Rossi, R. (2014). Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers. Macroeconomic Dynamics, 18(2), 395-417. https://doi.org/10.1017/S1365100512000430

Vancouver

Rossi R. Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers. Macroeconomic Dynamics. 2014 Mar;18(2):395-417. Epub 2012 Jun 13. doi: 10.1017/S1365100512000430

Author

Rossi, Raffaele. / Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers. In: Macroeconomic Dynamics. 2014 ; Vol. 18, No. 2. pp. 395-417.

Bibtex

@article{77551966644b4ee7ad38c9f1669812ff,

title = "Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers",

abstract = "This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper studied a model in which Ricardian equivalence holds, and he showed that monetary and fiscal policy can be studied independently. In Bilbiie{\textquoteright}s analysis, rule-of-thumb consumers break the Ricardian equivalence and generate important consequences for the design of monetary policy. In his model, steady-state public debt was equal to zero. We study a model with both rule-of-thumb consumers and positive steady-state public debt. We find that the mix of fiscal and monetary policies that guarantees equilibrium determinacy is sensitive to the exact values of the parameters of the model.",

keywords = "Rule-of-thumb consumers, Ricardian equivalence, Public debt, Monetary–fiscal policy interactions",

author = "Raffaele Rossi",

note = "http://journals.cambridge.org/action/displayJournal?jid=MDY The final, definitive version of this article has been published in the Journal, Macroeconomic Dynamics, 18 (2), pp 395-417 2014, {\textcopyright} 2014 Cambridge University Press.",

year = "2014",

month = mar,

doi = "10.1017/S1365100512000430",

language = "English",

volume = "18",

pages = "395--417",

journal = "Macroeconomic Dynamics",

issn = "1365-1005",

publisher = "Cambridge University Press",

number = "2",

}

RIS

TY - JOUR

T1 - Designing monetary and fiscal policy rules in a new Keynesian model with rule-of-thumb consumers

AU - Rossi, Raffaele

N1 - http://journals.cambridge.org/action/displayJournal?jid=MDY The final, definitive version of this article has been published in the Journal, Macroeconomic Dynamics, 18 (2), pp 395-417 2014, © 2014 Cambridge University Press.

PY - 2014/3

Y1 - 2014/3

N2 - This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper studied a model in which Ricardian equivalence holds, and he showed that monetary and fiscal policy can be studied independently. In Bilbiie’s analysis, rule-of-thumb consumers break the Ricardian equivalence and generate important consequences for the design of monetary policy. In his model, steady-state public debt was equal to zero. We study a model with both rule-of-thumb consumers and positive steady-state public debt. We find that the mix of fiscal and monetary policies that guarantees equilibrium determinacy is sensitive to the exact values of the parameters of the model.

AB - This paper studies the determinacy properties of monetary and fiscal policy rules in a small-scale New Keynesian model. We modify the standard model in two ways. First, we allow positive public debt in the steady state as in Leeper [Journal of Monetary Economics 27, 129–147 (1991)]. Second, we add rule-of-thumb consumers as in Bilbiie [Journal of Economic Theory 140, 162–196 (2008)]. Leeper studied a model in which Ricardian equivalence holds, and he showed that monetary and fiscal policy can be studied independently. In Bilbiie’s analysis, rule-of-thumb consumers break the Ricardian equivalence and generate important consequences for the design of monetary policy. In his model, steady-state public debt was equal to zero. We study a model with both rule-of-thumb consumers and positive steady-state public debt. We find that the mix of fiscal and monetary policies that guarantees equilibrium determinacy is sensitive to the exact values of the parameters of the model.

KW - Rule-of-thumb consumers

KW - Ricardian equivalence

KW - Public debt

KW - Monetary–fiscal policy interactions

U2 - 10.1017/S1365100512000430

DO - 10.1017/S1365100512000430

M3 - Journal article

VL - 18

SP - 395

EP - 417

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

SN - 1365-1005

IS - 2

ER -

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