Policy Choices Under Monetary and Fiscal Theories of the Price Level

Chadha, J.S. (2011) Policy Choices Under Monetary and Fiscal Theories of the Price Level. Macroeconomics and Finance in Emerging Market Economies, 4 (2). pp. 189-212. ISSN 1752-0843. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1080/17520843.2011.557389

Abstract

Price-level determination requires co-ordination of monetary and Öscal policy to ensure a unique rational expectations equilibrium (REE). This paper derives a number of implications for simple interest rate rules resulting from various Öscal strategies. We show that Öscal choices under either the monetary theory of the price-level (MTPL) and the Öscal theory of the price-level (FTPL) can challenge widely accepted principles of monetary policy. SpeciÖcally, we show that a Öscal rule that responds aggressively to output and ináation may force the monetary authorities to adopt signiÖcantly more aggressive output and ináation stabilization policy than suggested by the Taylor Principle. We also show how when monetary policy is severely constrained, the Öscal policy maker can act to stabilise the economy. Some policy conclusions in light of the lower zero bound for monetary policy and debt stabilization are drawn.

Item Type: Article
Uncontrolled keywords: Monetary and Fiscal Policy Rules; Ricardian, non-Ricardian fiscal policy
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Jagjit Chadha
Date Deposited: 29 Jun 2011 16:56
Last Modified: 23 Jan 2013 16:31
Resource URI: http://kar.kent.ac.uk/id/eprint/11178 (The current URI for this page, for reference purposes)
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