Interactions of Monetary and Fiscal Policy via Open Market Operations

Abstract

We examine interactions of monetary and fiscal policy in a sticky price model where public debt is non-neutral, as it provides transaction services. This property is brought about by a legal restriction on open market operations by which only government bonds are eligible. Debt creation eases access to money and can therefore induce households to increase purchases of goods. Government expenditures, which are not completely tax financed, and deficit financed tax cuts then tend to stimulate private consumption. However, for these fiscal impulses to raise real activity monetary policy should not too aggressively aim at stabilising the economy.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 21 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.