This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.

Albonico, A., Rossi, L. (2017). Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy. JOURNAL OF MACROECONOMICS, 52, 39-55 [10.1016/j.jmacro.2017.02.004].

Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy

ALBONICO, ALICE
;
2017

Abstract

This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.
Articolo in rivista - Articolo scientifico
Inflation bias; Liquidity constrained consumers; Markup shocks; Optimal monetary and fiscal policy;
Inflation bias; Liquidity constrained consumers; Markup shocks; Optimal monetary and fiscal policy; Economics and Econometrics
English
2017
52
39
55
reserved
Albonico, A., Rossi, L. (2017). Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy. JOURNAL OF MACROECONOMICS, 52, 39-55 [10.1016/j.jmacro.2017.02.004].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/151171
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