Monetary Policy and Fiscal Rules

Barbara Annicchiarico, University of Rome 'Tor Vergata'
Giancarlo Marini, University of Rome 'Tor Vergata'
Alessandro Piergallini, University of Rome 'Tor Vergata' and CeFiMS, SOAS, University of London

A BEJM Contributions article.

Abstract

This paper presents a Dynamic New Keynesian model with wealth effects to study the performance of monetary policy under Ricardian and non-Ricardian fiscal regimes. The model is calibrated to euro area quarterly data. The interactions between fiscal policy and interest rate rules have critical implications for equilibrium uniqueness. Within the class of Ricardian fiscal rules, active monetary policies are not necessary for equilibrium determinacy. However, monetary authorities overreacting to inflation not only improve macroeconomic performance, but also generate similar outcomes under different fiscal rules. Conversely, under non-Ricardian fiscal regimes, interest rate pegs are predicted to reduce inflation variability.

Submitted: August 12, 2005 · Accepted: January 10, 2008 · Published: February 12, 2008

Recommended Citation

Annicchiarico, Barbara; Marini, Giancarlo; and Piergallini, Alessandro (2008) "Monetary Policy and Fiscal Rules," The B.E. Journal of Macroeconomics: Vol. 8 : Iss. 1 (Contributions), Article 4.
Available at: http://www.bepress.com/bejm/vol8/iss1/art4

Download Tell a Colleague Print

 
 
 
 

ISSN: 1935-1690 ©1999-2008 The Berkeley Electronic Press™ All rights reserved.

To submit, subscribe, recommend this journal to your library, or sign up for email alerts, please visit: http://www.bepress.com/bejm