Munich Personal RePEc Archive

Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions

Chatelain, Jean-Bernard and Ralf, Kirsten (2020): Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions. Published in: Economics Bulletin , Vol. 1, No. 40 (5 February 2020): pp. 140-147.

[img]
Preview
PDF
MPRA_paper_98554.pdf

Download (132kB) | Preview

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.

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