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Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions by Chatelain, Jean-Bernard; Ralf, Kirsten is a scholarly article available to read on EtoBox.

What is Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions about?

We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended setup in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy. We thank John P. Conley, Luis de Araujo and one referree for their very helpful comments.

Author

Chatelain, Jean-Bernard; Ralf, Kirsten

Published

2020

Language

EN