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Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation
Author(s) -
MOTTA GIORGIO,
TIRELLI PATRIZIO
Publication year - 2012
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00535.x
Subject(s) - economics , indeterminacy (philosophy) , determinacy , asset (computer security) , consumption (sociology) , business cycle , taylor rule , welfare , monetary economics , complementarity (molecular biology) , aggregate demand , monetary policy , microeconomics , macroeconomics , central bank , market economy , mathematical analysis , social science , physics , genetics , mathematics , quantum mechanics , sociology , biology , computer security , computer science
The combination of limited asset market participation and consumption habits generates indeterminacy for empirically plausible calibrations of a business cycle model characterized by price and nominal wage rigidities. Equilibrium determinacy is restored by demand management policies based on simple fiscal rules. In this regard, fiscal control of nominal income growth is particularly effective. In addition the complementarity between the Taylor rule and the fiscal feedback on nominal income growth produces relatively large welfare gains, limiting both aggregate and intragroup volatilities.