Interest rate bounds and fiscal policy

Jagjit Singh Chadha; Charles Nolan

doi:10.1016/j.econlet.2003.12.001

Interest rate bounds and fiscal policy

Jagjit Singh Chadha, Charles Nolan

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

Abstract

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 language	English
Pages (from-to)	9-15
Number of pages	7
Journal	Economics Letters
Volume	84
Issue number	1
DOIs	https://doi.org/10.1016/j.econlet.2003.12.001
Publication status	Published - Jul 2004

Keywords

intertemporal macro
monetary policy and fiscal policy interactions

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10.1016/j.econlet.2003.12.001

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abstract = "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.",

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AU - Nolan, Charles

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AB - 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.

KW - intertemporal macro

KW - monetary policy and fiscal policy interactions

UR - http://dx.doi.org/doi:10.1016/j.econlet.2003.12.001

U2 - 10.1016/j.econlet.2003.12.001

DO - 10.1016/j.econlet.2003.12.001

M3 - Article

SN - 0165-1765

VL - 84

SP - 9

EP - 15

JO - Economics Letters

JF - Economics Letters

IS - 1

ER -

Interest rate bounds and fiscal policy

Abstract

Keywords

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