Can monetary policy control inflation when both monetary and fiscal policies change over time? When monetary policy is active, a long-run fiscal principle entails flexibility in fiscal policy that preserves determinacy even when deviating from passive fiscal, substantially for brief periods or timidly for prolonged periods. To guarantee a unique equilibrium, monetary and fiscal policies must coordinate not only within but also across regimes, and not simply on being active or passive, but also on their extent. The amplitude of deviations from the active monetary/passive fiscal benchmark determines whether a regime is Ricardian: timid deviations do not imply wealth effects.
Controlling Inflation with switching monetary and fiscal policies: expectations, fiscal guidance and timid regime changes
Guido Ascari;Anna Florio;Alessandro Gobbi
2020-01-01
Abstract
Can monetary policy control inflation when both monetary and fiscal policies change over time? When monetary policy is active, a long-run fiscal principle entails flexibility in fiscal policy that preserves determinacy even when deviating from passive fiscal, substantially for brief periods or timidly for prolonged periods. To guarantee a unique equilibrium, monetary and fiscal policies must coordinate not only within but also across regimes, and not simply on being active or passive, but also on their extent. The amplitude of deviations from the active monetary/passive fiscal benchmark determines whether a regime is Ricardian: timid deviations do not imply wealth effects.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.