Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144558
Authors: 
Gasteiger, Emanuel
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper, School of Business & Economics: Economics 2016/14
Abstract: 
Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the monetarist solution is unique and stationary under a passive fiscal/active monetary policy regime if monetary policy appropriately incorporates expectational heterogeneity. In contrast, the active fiscal/passive monetary policy regime's fiscalist solution is prone to explosiveness due to empirically plausible expectational heterogeneity. Nevertheless, this can be a well-defined, rather orthodox equilibrium. For operational monetary policy rules, only the results for the fiscalist solution prevail. Moreover, our results are plausible from an adaptive learning viewpoint.
Subjects: 
inflation
heterogeneous expectations
fiscal and monetary policy interaction
JEL: 
E31
D84
E52
E62
Document Type: 
Working Paper

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