Open AccessOptimal control in the New Keynesian model with monetary and fiscal policy interactions
Author(s) -
Tatyana A. Alexeeva,
Nikolay Kuznetsov,
Timur N. Mokaev,
I.A. Polshchikova
Publication year - 2021
Publication title -
journal of physics. conference series
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.21
H-Index - 85
eISSN - 1742-6596
pISSN - 1742-6588
DOI - 10.1088/1742-6596/1864/1/012040
Subject(s) - determinacy , new keynesian economics , economics , monetary policy , taylor rule , keynesian economics , fiscal policy , control (management) , macroeconomics , central bank , mathematics , mathematical analysis , management
Dynamics of the New Keynesian model in continuous time with the Rotemberg pricing mechanism is considered within a framework of an optimal control problem. Various regimes of monetary and fiscal policy (‘active’ and ‘passive’) can lead to unstable dynamics in the economy. Parameters of the Taylor rules for both monetary and fiscal policies determine conditions for local equilibrium determinacy. Mapping out the ranges of the Taylor coefficient values where local determinacy cannot be obtained allows to control the economic system by controlling these parameters.