Erschienen in:Bank of Italy Temi di Discussione (Working Paper) ; No. 1155
Umfang:
1 Online-Ressource (65 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.3084014
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 5, 2017 erstellt
Beschreibung:
This paper studies optimal discretionary monetary policy and its interaction with fiscal policy in a New Keynesian model with finitely-lived consumers and government debt. Optimal discretionary monetary policy involves debt stabilization to reduce consumption dispersion across cohorts of consumers. The welfare relevance of debt stabilization is proportional to the debt-to-output ratio and inversely related to the households probability of survival that affects the household's propensity to consume out financial wealth. Debt stabilization bias implies that discretionary optimal policy is suboptimal compared with the inflation targeting rule that fully stabilizes the output gap and the inflation rate while leaving debt to freely fluctuate in response to demand shocks