Time Consistency of Fiscal and Monetary Policy: A Solution
نویسندگان
چکیده
This paper demonstrates how time consistency of the Ramsey policy the optimal scal and monetary policy under commitment can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal bene t of a surprise ination exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite general Ramsey policies, including timevarying polices with positive ination and nominal interest rates. We compare our results with those in Persson, Persson and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe and Neumeyer (2004). JEL Classi cation: E310, E520, H210
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