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New Directions in Monetary and Fiscal Policy Analysis at the Macroeconomic Level

Grant reference: RES-062-23-1436

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Journal article details

Optimal fiscal feedback on debt in an economy with nominal rigidities
We examine the impact of different degrees of fiscal feedback on debt when monetary policy is determined optimally, rather than following a simple rule. We find the welfare maximising level of fiscal feedback to be small. We show for the first time a clear discontinuity in the behaviour of monetary policy and welfare either side of this optimal level. As fiscal feedback increases, optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks. If fiscal feedback falls below some critical value, monetary policy becomes strongly passive and this leads to a sharp deterioration in welfare.
10.1111/j.1468-0297.2011.02458.x
English

Primary contributor

Author Tatiana Kirsanova

Additional contributors

Co-author Simon Wren-Lewis

Additional details

112
559
Yes
0013-0133
Blackwell Publishing
01 March 2012
238-264
Oxford
Post-print
The economic journal

Cite this outcome

Harvard

Kirsanova, Tatiana and Wren-Lewis, Simon (2012) Optimal fiscal feedback on debt in an economy with nominal rigidities. The economic journal. 112 (559), pp. 238-264 Oxford: Blackwell Publishing.

Vancouver

Kirsanova Tatiana and Wren-Lewis Simon. Optimal fiscal feedback on debt in an economy with nominal rigidities. The economic journal 2012; 112 (559): 238-264.