When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levels

Tirelli, P., Motta, G. (2011). Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation [Working paper del dipartimento].

Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation

TIRELLI, PATRIZIO;MOTTA, GIORGIO ENRICO
2011

Abstract

When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levels
Working paper del dipartimento
Rule of Thumb Consumers; DSGE; Determinacy; Limited Asset Market Participation; Taylor Principle; Optimal Simple Rule
English
mar-2011
Tirelli, P., Motta, G. (2011). Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation [Working paper del dipartimento].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/22964
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