Munich Personal RePEc Archive

Ramsey Optimal Policy in the New-Keynesian Model with Public Debt

Chatelain, Jean-Bernard and Ralf, Kirsten (2020): Ramsey Optimal Policy in the New-Keynesian Model with Public Debt. Forthcoming in: Macroeconomic Dynamics

[img]
Preview
PDF
MPRA_paper_104536.pdf

Download (719kB) | Preview

Abstract

In the discrete-time new-Keynesian model with public debt, Ramsey optimal policy eliminates the indeterminacy of simple-rules multiple equilibria between the fiscal theory of the price level versus new-Keynesian versus an unpleasant equilibrium. If public debt volatility is taken into account into the loss function, the interest rate responds to public debt besides inflation and output gap. Else, the Taylor rule is identical to Ramsey optimal policy when there is zero public debt. The optimal fiscal-rule parameter implies the local stability of public-debt dynamics ("passive" fiscal policy).

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.