Alvarez, F;
Kehoe, PJ;
Neumeyer, PA;
(2004)
The time consistency of optimal monetary and fiscal policies.
Econometrica
, 72
(2)
pp. 541-567.
10.1111/j.1468-0262.2004.00500.x.
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Abstract
We show that optimal monetary and fiscal policies are time consistent for a class of economies often used in applied work, economies appealing because they are consistent with the growth facts. We establish our results in two steps. We first show that for this class of economies, the Friedman rule of setting nominal interest rates to zero is optimal under commitment. We then show that optimal policies are time consistent if the Friedman rule is optimal. For our benchmark economy in which the time consistency problem is most severe, the converse also holds: if optimal policies are time consistent, then the Friedman rule is optimal.
| Type: | Article |
|---|---|
| Title: | The time consistency of optimal monetary and fiscal policies |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1111/j.1468-0262.2004.00500.x |
| Publisher version: | https://doi.org/10.1111/j.1468-0262.2004.00500.x |
| Language: | English |
| Additional information: | The copyright to this article is held by the Econometric Society, http://www.econometricsociety.org/. It may be downloaded, printed and reproduced only for personal or classroom use. Absolutely no downloading or copying may be done for, or on behalf of, any for-profit commercial firm or for other commercial purpose without the explicit permission of the Econometric Society. |
| Keywords: | Friedman rule, maturity structure, time inconsistency, sustainable plans. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10054410 |
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