Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
957686 | Journal of Economic Theory | 2008 | 35 Pages |
Abstract
The paper examines simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify bifurcations associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements.
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Authors
Campbell Leith, Leopold von Thadden,