Leith, C. and von Thadden, L. (2008) Monetary and fiscal policy interactions in a New Keynesian model with capital accumulation and non-Ricardian consumers. Journal of Economic Theory, 140(1), pp. 279-313. (doi: 10.1016/j.jet.2007.07.005)
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Abstract
The paper examines simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify bifurcations associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Leith, Professor Campbell |
| Authors: | Leith, C., and von Thadden, L. |
| Subjects: | H Social Sciences > HB Economic Theory |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Journal of Economic Theory |
| ISSN: | 0022-0531 |
| ISSN (Online): | 1095-7235 |
| Published Online: | 20 September 2007 |
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