Interest rate bounds and fiscal policy

Jagjit Singh Chadha, Charles Nolan

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)


    When the monetary authority controls the short-term interest rate we find that under a regime of permanent (and even persistent but temporary) deficits that a strict upper bound on the feasible interest rate sequence is present. More generally, the satisfaction of the fiscal authority's present-value budget constraint in the presence of a deficit sequence, means that monetary and fiscal decisions cannot be independent. This is an important caveat to the results in McCallum. (C) 2004 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)9-15
    Number of pages7
    JournalEconomics Letters
    Issue number1
    Publication statusPublished - Jul 2004


    • intertemporal macro
    • monetary policy and fiscal policy interactions


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