E-mail alert  |  Contact  
Search:       Go  
Background  |   Sponsoring institutions  |   Editorial board   |   Advisory board   |   Associate editors
Call for papers  |   Submission guidelines  |   Editorial process
Current issue  |   Past issues  |  
June 2018 issue
List of authors
 
Bandeira, Pappa, Sajedi, Vella
Jacquinot, Lozej, Pisani
Smets
Franta, Libich, Stehlík
Kirsanova, Machadi, Ribeiro
Bi, Leeper, Leith
Slobodyan
Kim, Kim
Rigon, Zanetti
Orphanides
IJCB Home   Read the journal   Current issue
Past issues
2018
 
June
March
January
2017
 
December
September
June
March
February
2016
 
December
September
June
March
2015
 
December
September
June
March
January
2014
 
December
September
June
March
2013
 
December
September
June
March
January
2012
 
December
September
June
March
January
2011
 
December
September
June
March
2010
 
December
September
June
March
2009
 
December
September
June
March
2008
 
December
September
June
March
2007
 
December
September
June
March
2006
 
December
September
June
March
2005
 
December
September
May

Optimal Monetary Policy and Fiscal Policy Interaction in a Non-Ricardian Economy

by Massimiliano Rigona, and Francesco Zanettib

Abstract

This paper studies optimal discretionary monetary policy and its interaction with fiscal policy in a New Keynesian model with finitely lived consumers and government debt. Optimal discretionary monetary policy involves debt stabilization to reduce consumption dispersion across cohorts of consumers. The welfare relevance of debt stabilization is proportional to the debt-to-output ratio and inversely related to the household’s probability of survival that affects the household’s propensity to consume out of financial wealth. Debt-stabilization bias implies that discretionary optimal policy is suboptimal compared with the inflation-targeting rule that fully stabilizes the output gap and the inflation rate while leaving debt to freely fluctuate in response to demand shocks.

JEL Code: E52, E63.

 
Full article (PDF, 48 pages, 2057 kb)

Discussion by Johannes Wieland


a Bank of Italy
b University of Oxford