Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation

Giorgio Motta () and Patrizio Tirelli

No 204, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: When the central bank is the sole policymaker, the combination of limited asset market participation and consumption habits can have dramatic implications for the optimal monetary policy rule and for stability properties of a business cycle model characterized by price and nominal wage rigidities. In this framework, a simple countercyclical fiscal rule plays a twofold role. On the one hand it ensures uniqueness of the rational expectations equilibrium when monetary policy follows a standard Taylor rule. On the other hand it brings aggregate dynamics substantially closer to their socially efficient levels.

Keywords: Rule of Thumb Consumers; DSGE; Determinacy; Limited Asset Market Participation; Taylor Principle; Optimal Simple Rule (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-03, Revised 2011-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://repec.dems.unimib.it/repec/pdf/mibwpaper204.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation (2012)
Journal Article: Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:204

Access Statistics for this paper

More papers in Working Papers from University of Milano-Bicocca, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Matteo Pelagatti ().