Interest rate bounds and fiscal policy

Chadha, J.S. and Nolan, C. (2004) Interest rate bounds and fiscal policy. Economics Letters, 84(1), pp. 9-15. (doi:10.1016/j.econlet.2003.12.001)

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Abstract

When the monetary authority controls the short-term interest rate we find that under a regime of permanent (and even persistent but temporary) deficits that a strict upper bound on the feasible interest rate sequence is present. More generally, the satisfaction of the fiscal authority's present-value budget constraint in the presence of a deficit sequence, means that monetary and fiscal decisions cannot be independent. This is an important caveat to the results in McCallum [J. Political Econ. 92 (1984) 123].

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Nolan, Professor Charles
Authors: Chadha, J.S., and Nolan, C.
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economics Letters
ISSN:0165-1765
ISSN (Online):1873-7374
Published Online:05 March 2004

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