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Fiscal Sustainability in a New Keynesian Model.

Abstract:

Most recent work deriving optimal monetary policy utilising New Neo-Classical Synthesis (NNCS) models abstract from the impact of monetary policy on the government's finances, by assuming that any change in the government's budget can be financed through lump sum taxes. In this paper, we assume that the government does not have access to such taxes to satisfy its intertemporal budget constraint in the face of shocks. We then consider optimal monetary and fiscal policies under discretion and c...

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Campbell Leith More by this author
Simon Wren-Lewis More by this author
Volume:
310
Series:
Discussion Papers
Publication date:
2007
URN:
uuid:bddaa5c1-e8b6-4c47-8a0f-c2d39f0b92e5
Local pid:
ora:1349
Language:
English

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