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Jean-Bernard Chatelain and Kirsten Ralf
''Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions''
( 2020, Vol. 40 No.1 )
We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended set-up in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy.
Keywords: Frictionless endowment economy, Fiscal theory of the Price Level, Ramsey optimal policy, Interest Rate Rule, Fiscal Rule.
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Oct 28 2019 Manuscript Accepted : Feb 05 2020

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