EconStor >
University of Kent >
School of Economics, University of Kent >
School of Economics Discussion Papers, University of Kent >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/50569
  
Title:Policy rules under the monetary and the fiscal theories of the price-level PDF Logo
Authors:Chadha, Jagjit S.
Issue Date:2010
Series/Report no.:School of Economics discussion papers 10,13
Abstract:Price-level determination requires co-ordination of monetary and fiscal policy to ensure a unique rational expectations equilibrium (REE). This paper derives a number of implications for simple interest rate rules resulting from various fiscal strategies. We show that fiscal choices under either the monetary theory of the price-level (MTPL) and the fiscal theory of the price-level (FTPL) can challenge widely accepted principles of monetary policy. Specifically, we show that a fiscal rule that responds aggressively to output and inflation may force the monetary authorities to adopt significantly more aggressive output and inflation stabilization policy than suggested by the Taylor Principle. We also show how when monetary policy is severely constrained, the fiscal policy maker can act to stabilise the economy. Some policy conclusions in light of the lower zero bound for monetary policy and debt stabilization are drawn.
Subjects:monetary and fiscal policy rules
Ricardian fiscal policy
non-Ricardian fiscal policy
JEL:E21
E32
E52
E63
Document Type:Working Paper
Appears in Collections:School of Economics Discussion Papers, University of Kent

Files in This Item:
File Description SizeFormat
642533474.pdf390.36 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/50569

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.