Template-Type: ReDIF-Paper 1.0
Author-Name: Yuting Bai
Author-Name-First: Yuting
Author-Name-Last: Bai
Author-Name: Tatiana Kirsanova
Author-Name-First: Tatiana
Author-Name-Last: Kirsanova
Title: Infrequent fiscal stabilization
Abstract: This paper studies discretionary non-cooperative monetary and …fiscal policy stabilization in a New Keynesian model, where the …fiscal policymaker uses a distortionary tax as the policy instrument and operates with long periods between optimal time-consistent adjustments of the instrument. We demonstrate that longer …fiscal cycles result in stronger complementarities between the optimal actions of the monetary and …fiscal policymakers. When the …fiscal cycle is not very long, the complementarities lead to expectation traps. However, with a sufficiently long …fiscal cycle –one year in our model –no learnable time-consistent equilibrium exists. Constraining the …fiscal policymaker in its actions may help to avoid these adverse effects.
Creation-Date: 2014
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/InfrequentFiscalStabilization.pdf
File-Format: application/pdf
Number: 66983445
Classification-JEL: E31, E52, E58, E61, C61
Keywords: Monetary and fiscal policy interactions, distortionary taxes, discretionary policy, LQ RE models
Handle: RePEc:lan:wpaper:66983445