Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213806
Authors: 
Chatelain, Jean-Bernard
Ralf, Kirsten
Year of Publication: 
2020
Citation: 
[Journal:] Economics Bulletin [ISSN:] 1545-2921 [Volume:] 40 [Issue:] 1 [Pages:] 140-147
Abstract: 
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 set-up 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.
Subjects: 
Fiscal theory of the price level
Ramsey optimal policy
Frictionless endowment economy
Interest rate rule
Fiscal rule
JEL: 
E52
E58
E63
E62
Document Type: 
Article
Document Version: 
Published Version

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