Discussion paper

DP10586 Optimal Monetary and Fiscal Policy in an Economy with Inflation Persistence

This paper studies a simple New-Keynesian model of fiscal and monetary policy coordination when the policymaker acts under commitment. With a New Keynesian Phillips curve it is optimal to control inflation only through the use of monetary policy. But, when price-setters use a Steinsson (2003) Phillips curve, fiscal policy plays an active role, enabling a greater degree of consumption smoothing.

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Citation

Vines, D (2015), “DP10586 Optimal Monetary and Fiscal Policy in an Economy with Inflation Persistence”, CEPR Press Discussion Paper No. 10586. https://new.cepr.org/publications/dp10586