Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions

Jean-Bernard Chatelain (1, 2) , Kirsten Ralf (3)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques
3 Ecole Supérieure du Commerce Extérieur - ESCE

The reference model of frictionless endowment economies includes a Fisher relation for the real interest rate and government intertemporal budget constraint. For this model, Ramsey optimal policy mix is a unique equilibrium with an interest rate peg and a "passive" fiscal rule with a negative-feedback value of its parameter stabilizing public debt. This is a third equilibrium with respect to the two usual equilibria with ad hoc policy rules. The first one has passive fiscal policy and an active monetary policy rule parameter destabilizing in.ation. The second one has an active fiscal policy rule parameter destabilizing public debt and a passive monetary policy which includes the case of an interest rate peg. :

Mots clés: Frictionless endowment economy; Fiscal theory of the Price Level; Ramsey optimal policy; Interest Rate Rule; Fiscal Rule Keywords: Frictionless endowment economy; Fiscal Rule

Domaines: Economies et finances

Jean-Bernard Chatelain, Kirsten Ralf. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions. 2019. ⟨halshs-02278791v1⟩