Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5101285 | Journal of Macroeconomics | 2017 | 17 Pages |
Abstract
This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.
Keywords
Related Topics
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Economics and Econometrics
Authors
Alice Albonico, Lorenza Rossi,