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Policy Games, Distributional Conflicts, and the Optimal Inflation

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Policy Games, Distributional Conflicts, and the Optimal Inflation. / Albonico, A.; Rossi, L.

In: Macroeconomic Dynamics, Vol. 19, No. 6, 30.09.2015, p. 1261-1293.

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Albonico, A. ; Rossi, L. / Policy Games, Distributional Conflicts, and the Optimal Inflation. In: Macroeconomic Dynamics. 2015 ; Vol. 19, No. 6. pp. 1261-1293.

Bibtex

@article{b55851f5efe442b1aedbe1422528eb81,
title = "Policy Games, Distributional Conflicts, and the Optimal Inflation",
abstract = "This paper shows that limited asset-market participation (LAMP) generates an extra inflation bias when the fiscal and the monetary authority play strategically. A fully redistributive fiscal policy eliminates the extra inflation bias, but at the cost of reducing Ricardians' welfare. A fiscal authority that redistributes income only partially reduces the inflation bias, but raises government spending. Although a fully conservative monetary policy is necessary to get price stability, it implies a reduction in liquidity-constrained consumers' welfare, in the absence of redistributive fiscal policies. Finally, under a crisis scenario, none of the policy regimes is able to avoid the fall in economic activity when the increase in the fraction of LAMP is coupled with a negative technology shock, whereas optimal policy can avoid recession when it responds to the increase in LAMP proportion alone. ",
keywords = "Inflation Bias, Limited Asset Market Participation, Optimal Monetary and Fiscal Policy, Redistribution, Strategic Interaction",
author = "A. Albonico and L. Rossi",
year = "2015",
month = sep,
day = "30",
doi = "10.1017/S1365100513000825",
language = "English",
volume = "19",
pages = "1261--1293",
journal = "Macroeconomic Dynamics",
issn = "1365-1005",
publisher = "Cambridge University Press",
number = "6",

}

RIS

TY - JOUR

T1 - Policy Games, Distributional Conflicts, and the Optimal Inflation

AU - Albonico, A.

AU - Rossi, L.

PY - 2015/9/30

Y1 - 2015/9/30

N2 - This paper shows that limited asset-market participation (LAMP) generates an extra inflation bias when the fiscal and the monetary authority play strategically. A fully redistributive fiscal policy eliminates the extra inflation bias, but at the cost of reducing Ricardians' welfare. A fiscal authority that redistributes income only partially reduces the inflation bias, but raises government spending. Although a fully conservative monetary policy is necessary to get price stability, it implies a reduction in liquidity-constrained consumers' welfare, in the absence of redistributive fiscal policies. Finally, under a crisis scenario, none of the policy regimes is able to avoid the fall in economic activity when the increase in the fraction of LAMP is coupled with a negative technology shock, whereas optimal policy can avoid recession when it responds to the increase in LAMP proportion alone.

AB - This paper shows that limited asset-market participation (LAMP) generates an extra inflation bias when the fiscal and the monetary authority play strategically. A fully redistributive fiscal policy eliminates the extra inflation bias, but at the cost of reducing Ricardians' welfare. A fiscal authority that redistributes income only partially reduces the inflation bias, but raises government spending. Although a fully conservative monetary policy is necessary to get price stability, it implies a reduction in liquidity-constrained consumers' welfare, in the absence of redistributive fiscal policies. Finally, under a crisis scenario, none of the policy regimes is able to avoid the fall in economic activity when the increase in the fraction of LAMP is coupled with a negative technology shock, whereas optimal policy can avoid recession when it responds to the increase in LAMP proportion alone.

KW - Inflation Bias

KW - Limited Asset Market Participation

KW - Optimal Monetary and Fiscal Policy

KW - Redistribution

KW - Strategic Interaction

U2 - 10.1017/S1365100513000825

DO - 10.1017/S1365100513000825

M3 - Journal article

VL - 19

SP - 1261

EP - 1293

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

SN - 1365-1005

IS - 6

ER -