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On the Interaction between Monetary and Fiscal Policies under Perfect Foresight

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  • Liviatan, Nissan

Abstract

The author defines two parameters: the proportion (j) of interest payments on government bonds financed by taxes (as the fiscal paramet er) and the ratio (a) of money to bond finance of the deficit (as the monetary parameter). It is shown that while the effect of an increase in j is deflationary, the effect of a is ambiguous and depends on the level of j. The model is used to study the questions o f monetary neutrality, pure bond finance, and pure money finance of the deficit, as well as the tradeoff between monetary and fiscal policie s in maintaining a given level of inflation. Copyright 1988 by Royal Economic Society.

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  • Liviatan, Nissan, 1988. "On the Interaction between Monetary and Fiscal Policies under Perfect Foresight," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 193-203, March.
    • Handle: RePEc:oup:oxecpp:v:40:y:1988:i:1:p:193-203
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    Cited by:

    1. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
    2. Detken, Carsten, 1999. "Fiscal policy effectiveness and neutrality results in a non-Ricardian world," Working Paper Series 0003, European Central Bank.
    3. Detken, Carsten, 1999. "Fiscal policy effectiveness and neutrality results in a non-Ricardian world," Working Paper Series 3, European Central Bank.

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