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Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy

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Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy. / Albonico, A.; Rossi, L.
In: Journal of Macroeconomics, Vol. 52, 30.06.2017, p. 39-55.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Albonico A, Rossi L. Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy. Journal of Macroeconomics. 2017 Jun 30;52:39-55. Epub 2017 Feb 17. doi: 10.1016/j.jmacro.2017.02.004

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@article{3c4c2fb7985f48d49512182b7acfd43e,
title = "Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy",
abstract = "This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey. ",
keywords = "Inflation bias, Liquidity constrained consumers, Markup shocks, Optimal monetary and fiscal policy",
author = "A. Albonico and L. Rossi",
year = "2017",
month = jun,
day = "30",
doi = "10.1016/j.jmacro.2017.02.004",
language = "English",
volume = "52",
pages = "39--55",
journal = "Journal of Macroeconomics",
issn = "0164-0704",
publisher = "Elsevier BV",

}

RIS

TY - JOUR

T1 - Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy

AU - Albonico, A.

AU - Rossi, L.

PY - 2017/6/30

Y1 - 2017/6/30

N2 - This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.

AB - This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.

KW - Inflation bias

KW - Liquidity constrained consumers

KW - Markup shocks

KW - Optimal monetary and fiscal policy

U2 - 10.1016/j.jmacro.2017.02.004

DO - 10.1016/j.jmacro.2017.02.004

M3 - Journal article

VL - 52

SP - 39

EP - 55

JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

SN - 0164-0704

ER -