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Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy

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  • Kengo Nutahara

Abstract

This study investigates aggregate implications of fiscal policy that responds to asset price fluctuations. In our sticky-price model, the monetary authority follows a Taylor rule and the fiscal authority follows a rule that the target of government spending is asset prices and responds negatively to the asset price fluctuations. It is shown that government spending that targets asset prices is a source of equilibrium indeterminacy.

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  • Kengo Nutahara, 2013. "Asset Price Targeting Government Spending and Equilibrium Indeterminacy in A Sticky-Price Economy," CIGS Working Paper Series 13-003E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:13-003e
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    References listed on IDEAS

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    6. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    7. Chryssi Giannitsarou, 2007. "Balanced Budget Rules and Aggregate Instability: The Role of Consumption Taxes," Economic Journal, Royal Economic Society, vol. 117(523), pages 1423-1435, October.
    8. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    9. James B. Bullard & Eric Schaling, 2002. "Why the Fed should ignore the stock market," Review, Federal Reserve Bank of St. Louis, vol. 84(Mar.), pages 35-42.
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    1. repec:kob:wpaper:1625 is not listed on IDEAS
    2. Hiraga, Kazuki & Kozuka, Masafumi & Miyazaki, Tomomi, 2018. "Public capital and asset prices: Time-series evidence from Japan," Finance Research Letters, Elsevier, vol. 25(C), pages 172-176.

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